Markets haven’t worked that way since 1981 – and here’s how it happened

You have to go back to 1981 when stocks, bonds, inflation-protected bonds and industrial metals all went down at the same time.

S&P 500 Index SPX,
-0.10%
IShares 7-10 year Treasury Bond ETF IEF, back 18% this year
+ 0.47%
10% decreased, iShares TIPS Bond ETF TIP,
+ 0.01%
8%, and Invesco DB Base Metal Fund DBB,
+ 3.40%
1% relaxed.

Then, as of now, the Federal Reserve raised interest rates to curb inflation.

“Just like today, the world’s central banks were obsessed with the ‘backbone’ of inflation, which looked like the horror of a horror movie, dying before the second and third winds,” said Dhabal Joshi, chief strategist for BCA Research Counterpoint. “As of today, central banks are desperate to repair their badly damaged credibility in managing the economy.”

“And just like today, central bankers hoped to be able to pilot the economy into a ‘soft landing’, although they truly believe this is another story,” he added.

Yoshi said investors have no place to hide for fear of turning from recession to recession. In April, bonds saw the worst drop for stagflation concerns, with May, industrial metals and stocks retreating in May, the classic recessionary casualty.

Back in 1981, bond prices first plummeted towards the end of the summer. The stock was under pressure for the next few months, but was higher 12 months later. And industrial metals have not regained their height over the years.

If that happens now, he says, bond prices are now entering a downward spiral. Due to their increased sensitivity to bond yields, stocks will remain subsequently lower and will see a faster recovery than 40 years ago. He added that industrial metals could face at least double-digit losses next year.

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