Bloomberg had an interesting piece out this week on how the 60/40 stock-bond ratio mix that has been the bedrock of many investors portfolios could be dead. The reason is if we see a stagflationary environment where inflation is high, but growth is slow. See this helpful crib sheet from the folks over at Financial Source for help in seeing the different outcomes.


The concern is that rising inflation will see central banks around the world seek to slow down their economies by raising interest rates. This will hurt both bonds and stocks at the same time. The low growth era of the last 20 years or so have boosted the 60/40 strategy as it is built on the premise that rising stocks = falling bonds and vice versa. In September both bonds and stocks have fallen together.


Now the caveat with this of course is if inflation really is transitory. We know that central banks are dropping the ‘transitory’ word more and more, but the issues driving inflation are not insurmountable. Supply chain issues can be fixed. Oil prices can fall on rising supply, and natural gas prices can return naturally even during the warmer months. So, in these situations, the shifts in the narratives day to day can be traded intraday. However, the longer question still remains, ‘will inflation still rise in a world dominated by automation and globalisation?’. It is hard to say ‘yes’ with conviction. So, maybe inflation is transitory, but transitory may mean 2-3 years. So, it all depends on your timescale and reference point.

For the short term, it may be worth looking at gold. If inflation rises more quickly than yields that will force real yields lower. If the USD then starts to fall as well that is rocket fuel for gold. So, this is a key market to watch going forward.


However, the lesson is clear. Markets change rapidly at times. When they do it is a case of adapting with them when necessary.

Learn more about HYCM

High Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.

Feed news

Latest Forex Analysis

Latest Forex Analysis

Editors’ Picks

EUR/USD remains vulnerable near 1.1600 amid firmer dollar

EUR/USD is hovering around 1.1600, on the defensive amid a broadly stronger US dollar. Markets cheer US-Sino talks and stimulus progress despite looming inflation fears. The Fed-ECB monetary policy divergence weighs down on the euro. US Consumer Confidence data awaited.


GBP/USD hovers around 1.3750, Brexit talks in London eyed

GBP/USD is trading above 1.3750, struggling for a clear direction after Monday’s rebound. Market sentiment improves on stimulus hopes, US-Sino talks but the dollar remains firmer. UK’s Frost offers EU Dec deadline to solve the row over the NI proposal. All eyes on the Brexit talks.


XAU/USD flirts with $1,800 amid stronger USD, risk-on mood

Gold snaps a five-day uptrend, refreshes intraday low of late. Market sentiment dwindles amid pre-GDP caution, light calendar. US Treasury yields rebound, add strength to the greenback.

Gold News

Traders book profits from Shiba Inu to push Dogecoin to $0.34

Dogecoin price could see some incoming speculative money from profit-taking in Shiba Inu A bullish close above the Cloud on the daily chart indicates future upswing likely. The outperformance of Shiba Inu is likely as Dogecoin lags the majority of the market.

Read more

Conference Board Consumer Confidence October Preview: Watch what we do... Premium

Confidence expected to slip to 108.3 from 109.3 in September. Michigan Consumer Sentiment eroded slightly in October. Sentiment seems divorced from labor market and Retail Sales. Federal Reserve taper will not hinge on a happy US consumer.

Read more