Speaker 1 (00:16):

Hello, my name is Chad Taylor, managing partner with MDT Financial Advisors here in Houston, Texas. Today is March the 12th, 2024. And I wanted to go over a chart that I came across from the Wells Fargo Investment Institute that kind of talked about the correlation between stocks and bonds. And if you remember, a correlation is when do they move the same way or do they move differently? Meaning do stocks go up when bonds go down and do bonds go up when stocks go down? And what the correlation between those two are. So for years, that's always been the case, and you've had those times when stocks were up, bonds might be down, and specifically when stocks were down because of volatility, bonds going up. And if you remember, in 2022, for the most part, that didn't happen. You had stocks down and you had bonds down, and bonds were down more than they've been in a long, long time.

Speaker 1 (01:28):

If you remember all of that. Now, both have kind of come up from there, but it's still, bonds are still down from where they were prior to interest rates going up and inflation going up. And so this chart that the Wells Fargo Investment Institute put out kind of talks about why, what are some of those reasons, what happened in 2022 and will it continue or will it revert back to the way it was? Okay. So if we can look here at the chart of the week put out by the Wells Fargo Investment Institute, you can kind of see the correlation between the stock and the bond market. So first here, focus on the dotted line. That's a representation of inflation. You can see inflation was pretty low from basically the early eighties. Few times it rose early nineties, it was up before the financial crisis, it was up. But here in 2022, starting in 2021, it went up over 9% and it's since been coming back down.

Speaker 1 (02:43):

And the red line is the correlation between stocks and bonds. And so if we're below this line here, that means that they were not correlated, meaning they moved differently from each other. If stocks went up, bonds might've gone down, and if bonds went up, stocks might've gone down. And that's been going on here since the early two thousands. From 2000 to 2022. They were negatively correlated prior to that. You can see they were fairly positively correlated from the seventies to the early two thousands. But we've been negative now for over 20 years until you see this spike in inflation. So that's one of the reasons, and that's one of the things that happened in 2022. Now, we expect going forward that as inflation continues to come down, if interest rates come down because inflation has come down, we expect that the negative correlation or the negative price movements between stocks and bonds to revert back to the time that we had here from 2000 to 2022. Will it happen overnight? Probably not. But it's something that should start to kind of filter through here over the next year or so. So negative and positive correlation between stocks and bonds. If you have questions about this, if you would like a copy of this report, please let me know. Or if you have questions about anything else, please let me know. I hope you have a great day. Thank you.


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