For much of 2022, stocks and bonds moved in tandem on the way down. As the year turned, inflation peaked and the end of the Fed's tightening cycle appeared imminent. It was only natural for market pundits to predict that 2023 would be "the year of the bond".
Nine months have since passed and this prediction is yet to pan out. Stocks outperformed bonds in each of the first three quarters of the year.
There is no doubt that bonds will have their day in the not-so-distant future, but this recent episode demonstrated that bonds are not always safe assets and at times they can underperform stocks even on a risk-adjusted basis. It underscores the pitfall of relying solely on traditional bonds for diversification. Investors should consider adding alternative assets to better manage risks and mitigate the impact of market downturns.