Equity and Bond Markets Disagree

Markets have once again demonstrated remarkable resilience as the dual threats of inflation and war did not prevent equity markets from rallying for the second week in a row. One interesting perspective is that the bond markets continue to show some distress (see the green line in the chart below) even while equity markets advance.

This kind of “disagreement” between equity and bond markets is not unprecedented: it happens from time to time (it is what makes correlations between stocks and bonds less than one). What bits of wisdom can we glean from this current episode of disagreement? 1) The bond markets are suggesting Fed policy is behind. 2) The magnitude of the bond market rate increase suggests the Fed is behind by a lot. 3) The inflation threat is not over. Of course, the equity markets could win the day and the Fed may deliver that soft landing like they did in 1994. Time will tell.

From our standpoint, we continue to think investors should lower expectations for returns and expect heightened volatility. We at WealthPlan continue to make investment choices aimed at reflecting current conditions. We have a host of interesting investment strategies that can do well in a myriad of market conditions. While today’s markets are more challenging than we have experienced in a while, we are confident these times will eventually shift toward a less challenging investment climate. As always. We encourage you to talk it over with your advisor should your circumstances or risk tolerance be changing.

For the week ahead, we will get oil price readings, home related data, and jobs data.