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Economic Viewpoint

Stocks and Bonds: Parting Ways

August 14, 2023
Tiago Figueiredo
Macro Strategist

Over the past year, the positive correlation between stocks and bonds has been a source of pain for many cross‑asset investors. A negative stock–bond correlation ultimately rests on price stability, and we expect central bankers will eventually achieve that. Of course, given the recent bout of high inflation and emerging secular trends, returning inflation to 2% could take some time and prices may be more volatile moving forward. That means the stock–bond correlation is unlikely to return to the deeply negative range it was in between 2000 and 2020. Investors may, therefore, need to look to other asset classes to diversify their portfolio risks—at least until there are clearer signs that inflation has been truly tamed.

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