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.
