About Face in the Stock/Bond Correlation?

In times of crisis and turmoil, investors gravitate towards safe money havens. To avoid impending losses in high-risk asset classes like stocks, they seek the supposedly safer realm of sovereign investments. The resulting inverse correlation between the two asset classes is good for investors who can use this divergence as a natural hedge in their portfolio structure. 

Have investors benefited from such a structural hedging mechanism in the past? An analysis of US bond data and the S&P 500 over the period from 1954 to 2021 including both times of positive and negative correlation coefficients indicates that there is no unambiguous answer to this question. At the turn of the millennium and the bursting of the dotcom bubble, the sign of the moving correlation coefficient turned negative, falling to -0.53 in the wake of the Corona pandemic in April 2020, for example. To find out whether investors can continue to rely on a natural hedge mechanism, see our latest Economic Situation and Strategy report.