Investors shelter from twin declines in US stocks, bonds

Shafaq News / Side-by-side declines in U.S. equity and fixed income markets are pushing investors into cash, commodities and dividend-paying stocks as geopolitical uncertainty and worries over a hawkish Federal Reserve rock asset prices.

With the first quarter of 2022 winding down, the S&P 500 is down around 5% year-to-date, after falling as much as 12.5% earlier in the year.

The ICE BofA Treasury Index, meanwhile, was recently down 5.6% this year, its worst start in history.

Investors have traditionally counted on a mix of stocks and bonds to blunt declines in their portfolio, with stocks ideally rising amid economic optimism and bonds strengthening during times of uncertainty.

That strategy can go awry, however, and market gyrations stemming from Russia’s invasion of Ukraine, soaring commodity prices and the Fed’s hawkish tilt have combined to make it harder to follow the playbook this time around.

Though a sharp bounce in stocks has more than halved the S&P 500’s losses for the year-to-date, some investors are wary the rebound may not last and are seeking to cut their exposure.

Investors moved $13.2 billion to cash and $2.1 billion to gold over the last week, data from BoFA Global research showed.

U.S. stocks saw $3.1 billion in outflows, their largest in nine weeks.

The firm’s latest survey showed fund managers’ cash positions earlier this month at their highest since March 2020.

Yields on the 10-year benchmark U.S. Treasury, which move inversely to bond prices, reached a three-year high of around 2.5% in the past week, with investors now pricing in more than 200 basis points of interest rate tightening this year.

Investors will be watching U.S. non-farm payroll data this week as they gauge whether the economy is strong enough to handle the Fed's aggressive rate-hike trajectory.

To be sure, some investors believe times of overriding pessimism are ideal for buying stocks, an idea supported by ample evidence of defensive position that has accompanied the S&P 500's recent bounce.

(Reuters)