02 June 2023

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History does not repeat itself but there are often parallels

Luigi Campopiano

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In September 2018, former President Trump, happily tweeting because the S&P 500 had reached 3,000, was also angry with the Federal Reserve for continuing to raise interest rates. Even then, there had been an inflationary flare that the U.S. central bank had decided to address. And, even then, the rise in interest rates — less rapid than today — had caused a drop in both equity and bond markets. 

2018 was one of the worst years ever in financial markets, one of a very few across all asset classes to close in negative numbers.

Mark Twain once wrote, "History doesn’t repeat itself, but often rhymes."

2022 will be remembered as a challenging year financially. Unlike 2018, not all asset classes have been negative. Still, the two most important asset classes have been largely in the red. Last year will be remembered for the joint decline of the equity and bond markets after years of good results, albeit not without moments of strong swings, and not even instruments considered safe such as those under the U.S. Treasury have protected investors. 

Usually, the 60-40 stock/bond mix, the typical portfolio in the U.S., worked thanks to that bond component that cushioned the blows in the dark years for stocks. In 2022, however, this mix returned a deep red bottom line to investors.

Is there a light at the end of the tunnel? The answer is “yes,” because any crisis has not only a beginning but also an end. It will be the same this time too. 

However, despite having common features, crises are always different. What never changes are the gut reactions of savers who often, precisely at the moment of maximum pessimism, can no longer bear the volatility and give up by exiting their investments. 

In just a few months, the bond market has created, once again, interesting opportunities for those investors ready to seize them. The figure used in this article shows the growth in U.S. government bond yields from 2021 to September 2022.