Strategies for Volatile Markets

1. Volatility is back

We’ve entered a new regime where volatility from inflation and policy tightening is reverberating through financial markets.

2. Portfolios are under pressure

The traditional balanced portfolio comprised of stocks and bonds is under pressure; 2022 has been one of the worst performing years for the 60/40 portfolio in decades.1

3. Evolving for a new regime

Investors may consider incorporating alternative strategies that can seek to provide differentiated, uncorrelated returns and portfolio diversification.

For years leading up to the pandemic, low inflation and stable growth created a favorable environment for investors that supported sustained periods of robust stock and bond returns. With inflation virtually non-existent, economic downturns were met with monetary and fiscal stimulus that provided a backstop for financial markets. Figure 1 highlights the volatility of U.S. inflation-adjusted gross domestic product (“Real GDP”) and inflation since 1965. During the period of the Great Moderation from the mid-1980s to the late-2000s, real GDP growth was relatively stable and inflation uncertainty remained benign.