To understand the current situation in the market, we should remember the year 1981, when stocks, bonds with inflation protection and industrial metals fell at the same time, writes Market Watch.
At the time, the S&P 500 was down 18%, 7- and 10-year Treasury bonds were down 10%, inflation-protected papers were down 8%, and the Invesco DB Base Metals Fund futures commodity fund was down 1%.
Similar points, according to Dhawal Joshi, chief strategist at BCA Research, were also that, just as now, the US Federal Reserve was raising interest rates to “break the back” of the inflation that came back again and again.
“Like today, central banks have been desperate to restore their badly damaged authority in managing the economy. And just like today, central banks hoped that they could give the economy a soft landing, although whether they believed in this is a completely different matter, ”he added.
The shift from stagflation to recession fear leaves no chance for investors to find safe haven. In April of this year, bonds experienced a huge drop due to fears of stagflation, while in May industrial metals and stocks fell in price, becoming classic victims of a recession.
Going back to 1981, remember that bond prices first bottomed out at the end of the summer, and stocks remained under pressure for the next few months, but rallied 12 months later. And industrial metals could not recover their highs for several more years.
If the situation goes according to this scenario, the expert believes, then bond prices will reach the bottom. Stocks will then bottom out and bounce back, even faster than they did 40 years ago due to their heightened sensitivity to bond yields. As for industrial metals, most likely they will suffer losses next year.
— Market Watch materials were used in the preparation
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