When interest rates jump, bond prices drop because older bonds become less valuable. Their coupon payments are now lower than those of new bonds being offered in the market at higher rates.
The combination of high inflation and aggressive rate hikes set the stage for a rare occurrence: Values of stocks and bonds plunged simultaneously.
“Going back to 1929, there have only been 3 years where bonds didn’t go up when stocks went down,” investment firm BlackRock wrote in a report last year. The last time it happened was 1969, it said.
Maybe it won’t matter.
“There’s so much negative sentiment, it almost feels and seems like recession has already been priced in,” said Peter Essele, Commonwealth Financial Network’s head of portfolio management. “This has been the most over-forecasted recession. I think people are sort of numb.”
Three-quarters of Americans already thought the economy was already in a recession last fall, according to a CNN poll. The fourth-quarter AICPA Business and Industry Economic Outlook Survey showed 51% of business executives said the U.S. economy was either already in recession or would be by the new year.
Because people are already preparing for the worst, Essele says “usually, stocks bottom 60% or so way through a recession, but I think we will -- or already have bottomed – a lot sooner in this one. Recent data also, some economists say, point to a slower economy but possibly, no recession or a shallow one.”
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