Stocks And Bonds Coming Back

Stocks and bonds should make a comeback this year, says Cambridge Associates. While expectations are for a recession in the months to come, it says it will pay to overweight equities, that’s even though inflation should remain high relative to central bank benchmarks. Since 1970, stock returns in the 12 months after a downturn have shot up between 20 per cent and 54 per cent. This keeps investors who wrongly time rebalancing decisions during downturns to miss out on the returns that tend to follow. And while corporate earnings growth will be below average, equity price levels have tended to bottom before earnings in past downturns. Adding to the reassuring picture is that bonds should reverse their own slump, the firm says. Fixed income this year has suffered an unaccustomed rout amid higher inflation and rising rates. However, investors, particularly institutions, will be attracted to bonds because they have been offering higher yields lately.