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Really, anything. In an environment of decreasing inflation, or a return to moderate inflation, both stocks and bonds will be expected to do well. Look at how e
by voisin 4y ago
Really, anything. In an environment of decreasing inflation, or a return to moderate inflation, both stocks and bonds will be expected to do well. Look at how every asset class has collapsed this year, due to inflation expectations and resulting rising interest rates. Now consider the reverse. Just don’t go into TIPs bonds or stay in cash.
- fullshark 4y agoWhat about deflation risk?
- voisin 4y agoTheoretically with broad based deflation everything does poorly. Deflation is super destabilizing as suddenly all the debt in the economy are secured by assets less valuable than expected and producing less cash flow (cannot have stable or growing cash flows in the aggregate in a deflationary environment), so the dominoes of debt start falling as borrowers default. You’d want to be in cash so you can take advantage of cheap buying opportunities. Realistically, it seems central banks and politicians will die on the hill of deflation and do everything in their power to avoid it, even if it means (as it has in ‘89, ‘01, ‘08, and ‘20) just kicking the can down the road and causing greater, less stable bubbles. That said, look at the stock market - it has been deflationary this year. So cash is King in this environment. Just not so much at the grocery store or when you get your utility bill.
- francisofascii 4y agoEh. If the Fed overstepped, then you could see a stop to inflation and a recession, which could lead to lower stock prices and higher bond prices in the short term, as Fed stops the rate increases.