Rethinking the stock–bond relationship
A fascinating chart from Dan Rasmussen at Verdad Advisers should make every proponent of the 60/40 model pause.
Over nearly two centuries of data, one fact stands out: the stock/bond correlation isn’t structurally negative. It flips positive, especially when core inflation exceeds 3% and becomes volatile.
Because when inflation is high and unpredictable, central banks tighten aggressively to protect credibility.
Bonds sell off.
Equities reprice lower.
Correlation turns positive.
And diversification falters.
Only when core inflation is stable and below 3% do central banks step in to cushion markets, restoring the negative correlation investors rely on.
Which is crucial today as trillions are tied up in 60/40 portfolios built on the assumption that bonds will always hedge equities.
But recent events — from 2022 to the tariff tantrum of 2025 — challenge that comfort.
Time for allocators to figure out on which section of the chart we are likely to be in the coming years and whether a 60:40 balanced approach to investing is likely to deliver the goods.
