Back to View all
Chart of the week

Stock-bond correlation hits multi-decade high

Stock-bond correlation spiked in 2023 to a 40-year high. This week’s chart looks at how it exacerbates the diversification challenge.

January 5, 2024 | 3 minute read

Rolling three-year correlation between stocks and bonds

Source: Bloomberg Finance, LP, FS Investments. Rolling 36-month correlation between the S&P 500 and Bloomberg U.S. Aggregate Index.

  • Stock and bond markets rallied in Q4 2023 as investors quickly adjusted their expectations from a higher-for-longer rate environment toward a Goldilocks-style soft landing amid cooling inflation data and increasingly dovish comments from Fed officials. In the fourth quarter alone, the S&P 500 rose 11.5% while the Agg climbed 6.8% as Treasury yields plunged.
  • Amid the cross-market rally, the rolling three-year correlation between stocks and bonds spiked, hitting 0.68 as of December 31, 2023.1
  • Said another way, investors relied on core fixed income to act as a ballast against volatile equity markets. But today’s high correlations may call into question bonds’ reliability as a portfolio diversifier.
  • Within this environment, alternative sources of diversification and total return potential may be at a premium as investors seek attractive risk-adjusted returns.

  • Bloomberg Finance, LP, FS Investments. Rolling 36-month correlation between the S&P 500 and Bloomberg U.S. Aggregate Index.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.

Print this page Email this page

Related Insights

Chart of the week

Middle market PE funds outperform through rate hike cycle

Middle market private equity has outperformed mega cap PE since the Fed began to raise rates. It remains well positioned amid a cloudy rate outlook.

Chart of the week

Historically high valuations challenge equity returns

Stocks have generated paltry forward returns during historical periods when valuations have been as high as they are today.

Chart of the week

Rising volatility expectations point to market anxiety

Expectations for equity and rate volatility spike amid increased election and rate anxiety.

Search our site