Stocks and Bonds Rose Together. Now Both Are Faltering. What to Do?
From 2009 until early this year, stocks and bonds largely rose together. But now they’re falling together.
The S&P 500 has slid 13% so far this year, and the Bloomberg U.S. Aggregate bond index has lost 10%.
The indexes are on pace for their biggest simultaneous fall since 1976, when Dow Jones Market Data started following the numbers, .
The only other year when the two indices both fell was 1994, and that was only 1.5% for the S&P 500 and 2.9% for the Agg index.
Soaring inflation and the Federal Reserve’s program to raise interest rates are pushing down both stocks and bonds.
Consumer prices climbed 8.5% in the 12 months through March, a 40-year high. And the Fed is expected to continue lifting interest rates through year-end and into next year.
Bonds are supposed to act as a buffer to protect investors’ portfolios against falling stock prices, but, obviously, that's not happening now.
So what’s an investor to do?
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Safe Individual Bonds, Consumer-Staple Stocks
Bonds are starting to offer more attractive yields amid the Fed’s action on interest rates. So investors might consider individual bonds that can protect them from falling stocks.
. As Treasury bonds, they’re very safe, and their yield varies with inflation. That’s quite an advantage now, given soaring prices. The bonds yield 9.62% through October.As for stocks, consumer staples and commodity-related shares have escaped much of the carnage this year.
Consumer staples generally do well in times of economic weakness, and we may soon be in one. Commodity-related stocks are benefiting from inflation, which has pushed up the S&P GSCI commodity index 36% so far this year.
Among consumer staples, Coca-Cola (KO) - has gained 7% during that period, warehouse-club retailer Costco (COST) - is off 7% this year and snacks giant Mondelez (MDLZ) - has ticked down 2.4%.
As for commodity stocks, Chevron (CVX) - has soared 38% so far this year.
The author of this story owns Apple bonds and Coca-Cola stock.
