Inflation Undermines Bond Stability in Portfolios
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 6 days ago
0mins
Source: Yahoo Finance
- Erosion of Bonds' Role: Morgan Stanley's analysis of 150 years of stock and bond data reveals that when inflation exceeds 2.4%, bonds significantly lose their function as a stock market shock absorber, with current inflation at 3.8% posing greater risks for investors.
- Portfolio Performance Decline: The classic 60/40 portfolio peaked at the end of 2021 and, while it has rebounded, the recovery in bonds has been much weaker than in stocks, as the Bloomberg Aggregate Bond Index has only returned to its starting level, indicating a decline in bond attractiveness.
- Disappearance of Negative Correlation: Morgan Stanley highlights that inflation is the primary driver of stock and bond movements together, with inflation above 2.4% leading to positive correlation, which diminishes the protective capacity of portfolios, prompting investors to reassess risks.
- Future Market Risks: While bonds still provide value for income-seeking investors, factors like inflation, rising oil prices, and fiscal stress may hinder bonds from delivering expected protection, necessitating cautious navigation of potential market shocks.
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Analyst Views on MS
Wall Street analysts forecast MS stock price to fall
14 Analyst Rating
7 Buy
7 Hold
0 Sell
Moderate Buy
Current: 203.790
Low
132.00
Averages
185.00
High
219.00
Current: 203.790
Low
132.00
Averages
185.00
High
219.00
About MS
Morgan Stanley is a global financial services company. The Company is engaged in providing a range of investment banking, securities, wealth management and investment management services. Its segments include Institutional Securities, Wealth Management and Investment Management. Its Institutional Securities segment provides a variety of products and services to corporations, governments, financial institutions and ultra-high net worth clients. Its Wealth Management segment provides an array of financial services and solutions to individual investors and small to medium-sized businesses and institutions. Its Investment Management segment provides a range of investment strategies and products that span geographies, asset classes, and public and private markets to a diverse group of clients across institutional and intermediary channels. Its investment banking services consist of capital raising and financial advisory services, including the underwriting of debt and other products.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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