Taking a longer-term view of history, the following chart shows that the strong anti-correlation between US stocks and bonds that we have seen since the late 1990s is something of an aberration.
Over recent decades, bonds have performed extremely well while also providing reliable diversification for stocks.
Expecting a repeat performance in the decades to come reminds us of the late financial historian Peter L Bernstein’s comment: “There is a difference between an optimist and a believer in the tooth fairy.”
Relying solely on bonds to manage risk at today’s prices strikes us as imprudent, at best.
Graeme Forster is an analyst at Orbis Investments