Re the latter, unquestionably yes (see below), and re the former, the answer for equities declining was more driven by the uncertain outlook created by the need for increased interest rates to damp down Covid & energy price/input factor inflation affecting macro corporate performance.
The big issue since the GFC in 2008/9 (which some predicted would be short lived!), is that the developed economies had become reliant and complacent on ‘cheap money’ (vis interest rates) and QE (quantitative easing), the latter used to avoid any market liquidity issues, and boost demand. Yields across the equity, bond and wider debt markets had become artificially compressed i.e. making bonds have far higher capital values than they should have done (things arguably made worse by the various central bands upping demand for their QE programmes). The relative prices of equities, bonds and other instruments was also materially out of kilter for the risk premia which should have been in play.
This overall scenario is anathema to the classical economic pictures around economies working to 3/4/5-year cycles, where interest rates and thereby bond valuations operated in counterbalance to falling equity prices, the latter seen in response to emerging recessions i.e. as economies veered towards recession, interest rates would be cut and bond values harden, thereby acting as a bit of a shock absorber (in capital value and also income terms).
I think it’s fair to say, things in the run up to 2022 were acknowledged to have been awry, as the scenario simply wasn’t sustainable and something was bound to upset things. The challenge is working out what’s going to give and by how much, especially when the various central banks nowadays have mandates to focus on inflation and employment – and the Fed was very open about the need to control inflation which, as it turned out, was far stickier than initially forecast.
Of course, bond prices remain supressed, as the suggested rate reductions which would buoy capital prices have been delayed > expectations.
There have been many pieces in the UK media which suggest that the 60/40 equity/bond fund may have had its day…hmm, I’m not so sure, as the question remains of where do you invest if you don’t accept this kind of profile? Do you go 80/20 etc,…kinda Dirty Harry time, ‘do you feel lucky…’!
