We appear to be in the middle of a long-absent bout of volatility for both stocks and bonds. After a year of almost no volatility, all the major US indices fell strongly last week. The market is also off to a rocky start today. Now, Barron’s is arguing that this could be the beginning of an ugly ride. The reason why is that the recent trend of stocks and bonds being negatively correlated is ending. While for many years bond prices would rise when stocks fell, and vice versa, the opposite is happening now. Because the market fears rate hikes, bonds and stocks are falling in unison, with nothing to give the market comfort. For that reason, the “bond cushion” that has protected markets since the Crisis, appears to be gone.
FINSUM: The whole paradigm of markets is changing right now. Stock investors cannot simply flee into Treasuries as they have for years, which means there is little place a hide—a fact which could bring more serious losses.