After unusually moving in the same direction last year, the asset classes were expected to return to an inverted relationship in 2023 and increase the appeal of the popular 60/40 portfolio. But returns on the investment strategy have eased after a strong start to the year as bonds price in a recession while stocks show resilience to the actions of a central bank monetary policy bet.
The Bloomberg Global Aggregate Index, which tracks the performance of investment-grade debt, has rebounded from its October low but remains about 18% below its high. Meanwhile, the MSCI World Index has advanced 5.4% so far this year after falling nearly 20% in 2022.
“Markets are pricing in the best of both worlds: a recession that quickly reduces inflation and keeps rates low, but where corporate profits don’t fall cloudy,” Barclays Plc analysts including Ajay Rajadhyaksha said. “We are skeptical and think that both US stocks and bonds look expensive,” he wrote in a report.