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Chart of the week

Stock-bond correlation is quickly rising

Stock-bond correlation has been on the rise again. This week’s chart looks at the trend and how it has exacerbated the diversification challenge.

August 18, 2023 | 2 minute read

S&P 500/Bloomberg Agg rolling 40-day correlation

Source: Bloomberg Finance, L.P., as of Aug. 11, 2023. Bloomberg Agg refers to the Bloomberg U.S. Aggregate Index.

  • The correlation between stocks and bonds fell rapidly through the first half of the year over hopes for a soft landing and growing sentiment the Fed’s tightening cycle would come to an end. 
  • As the chart shows, however, the 40-day rolling correlation of stocks and bonds has spiked since May and currently resides near its peak of 2022, a period when stocks and bonds declined in unison.
  • The sharp rise in stock/bond correlation reflects the ongoing challenge in building diversified portfolios. Furthermore, investing in the S&P 500 has increasingly implied a concentrated bet on a small group of stocks.  
  • As the economy and financial markets grapple with the potential for a higher-for-longer interest rate environment, investors will increasingly need to seek investments that can help manage risk and don’t rely on broader market performance to generate returns.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

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