Moreover, this disturbing trend may not have run its course just yet. A further moderation in rate hikes by central banks and their eventual pause could bolster stock and bond returns in the new year, but it’s still unclear when exactly the United States Federal Reserve and other central banks will stop their current tightening cycle and declare victory in their fight against inflation.
That, however, doesn’t mean 60/40 portfolios should be abandoned altogether. In time, the historical dynamic between bonds and stocks is likely to return, especially in the case of a recession, which could give bonds an undoubted boost while leaving equities more vulnerable. Of course, investors now have several options available to them on this front, including private-capital alternatives that were once the sole reserve of institutions not too long ago. These strategies include private equity, private credit, real estate and infrastructure. Though less liquid in nature, they have largely escaped the volatility that the public markets have experienced in 2022.
Regulations that place increasing capital buffer requirements on Canada’s banks have cooled their lending appetite and increased the bar for borrowers to qualify. This has opened the door for private lenders to access a pool of potential credit-worthy borrowers that had typically satisfied Canada’s largest banks.