GLOBAL INVESTMENT OUTLOOK Q4 2019

Raising resilience

Portfolio resilience is crucial at a time of elevated macro uncertainty.

Raising resilience
Stock-bond correlations in the U.S. and euro area, 2000-2019

Stock-bond correlations in the U.S., 2000-2019
Stock-bond correlations in the Europe, 2000-2019

Past performance is not a reliable indicator of current or future results.
Source: BlackRock Investment Institute, with data from Refinitiv Datastream, October 2019. Notes: The charts show the correlations between daily percentage moves for stocks and bonds over a rolling one-year period. The dot shows the correlation over the most recent 90 day period. For the United States, we use the MSCI USA index for stocks and the 10-year Treasury for bonds. For the euro area, we use MSCI Europe ex-UK index and the German 10-year bund. Indexes are unmanaged and not subject to fees. It is not possible to invest directly in an index.

Government bonds play an important role in building portfolio resilience – even at low yield levels. We see them as crucial diversifiers that can help offset the impact of equity selloffs in an environment of rising macro uncertainty. The charts above show the negative correlations between stocks and bonds. The more negative the correlation, the more they move in opposite direction and provide diversification. We prefer U.S. Treasuries for this reason. In Europe, German bunds are less effective shock absorbers as yields approach their perceived floor.

Market implication: Government bonds play an important role in building portfolio resilience – even at low yield levels.

What does this mean for portfolios?
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What does this mean for portfolios?
Meet the authors
Jean Boivin
Jean Boivin
Head of BlackRock Investment Institute
Wei Li
Global Chief Investment Strategist – BlackRock Investment Institute
Alex Brazier
Deputy Head of BlackRock Investment Institute
Wei Li
Global Chief Investment Strategist – BlackRock Investment Institute
Alex Brazier
Deputy Head of BlackRock Investment Institute
Vivek Paul
Vivek Paul
Senior Portfolio Strategist, BlackRock Investment Institute