When stocks and bonds tumble together, investors look for alternatives

New York (AFP) – Worst start to the year since 1939 for equities on Wall Street, and unprecedented fall in bonds since 1842: to escape the slump of the two star investments, investors are looking for alternatives.

“For the first time in decades, investors are facing both real inflationary pressure and an aggressive US central bank (Fed), determined to tighten its monetary policy to bring prices down to earth, explains Ross Mayfield, of Baird.

“This led to a drop that affected both stocks and bonds,” he continues.

With rates soaring, bond prices are falling (the two are moving in opposite directions) and they are no longer playing their safe haven role when equities are rocking.

The war in Ukraine, the sanctions against Russia and the lockdowns in China have added to the anxiety of the market, which no longer has certainty. “It’s a very challenging environment,” said Anwiti Bahuguna, head of all-asset strategy at Columbia Threadneedle Investments.

“It’s a puzzle in the sense that we don’t yet have well-defined parameters on the persistence of inflation and global growth,” observes Chaguir Mandjee, portfolio manager at Tailor AM.

“I’m fleeing the market. (…) I think this collapse will be even worse than in 2008,” said a small carrier, contacted on the social network Reddit and who did not wish to give his name. “Right now, I’m looking to go into cash and precious metals.”

Operators of the New York Stock Exchange, May 6, 2022 SPENCER PLATT GETTY IMAGES NORTH AMERICA/AFP/Archives

“A lot of investments go into cash”, investors selling their assets to keep only cash, confirms Greg McBride, chief analyst at Bankrate, even if, unlike the financial crisis of 2008, inflation causes capital to lose mechanically of value.

Art and materials

Another destination of the moment, according to him, are money market funds, financial products that bring in little but are deemed to be very safe and relatively sheltered from the upheavals of the stock market.

In the same vein, term deposits, guaranteed by banks, or savings accounts. They were shunned in recent years because of their very low interest rates, often less than 0.50% per year, but are becoming attractive again.

After having sold its bonds with, as a result, a loss of 9%, the small bearer of Reddit thus found a forward account for two years, at 2.65%.

The Anwiti Bahuguna team says it saw the slide in bonds coming and reoriented itself towards commodities, which are now easily accessible, via funds, to institutional investors and individuals alike.

From precious metals to energy and agricultural raw materials, commodities are considered the anti-inflation weapon par excellence.

Index funds (also called ETFs), which follow the prices of these materials or of companies in their sector, have posted insolent gains since the start of the year, often in excess of 30%.

But even this providential investment is showing signs of running out of steam. The repercussion of the record levels recently reached, but also of the end of cheap credit with, in addition, the specter of an economic slowdown which would weigh down the demand for raw materials.

The price of gold has melted, the ounce of gold fell Friday to 1,799.31 dollars, its lowest since February

The price of gold has melted, the ounce of gold fell Friday to 1,799.31 dollars, its lowest since February Larry Busacca GETTY IMAGES NORTH AMERICA/AFP/Archives

Coffee, copper, nickel or silver are all in the process of folding back the sails, after a dazzling start to the year, as is gold, a little hastily presented by some as a shield against inflation, just like bitcoin, today in turmoil.

In addition to raw materials, “for those who want to make a transition” more marked than a simple step aside, “for longer, there is real estate”.

Since 2019, before the pandemic, the median price of a home has taken 39% in the United States, according to the National Association of Realtors (NAR) and continues to rise.

There remain alternative investments, such as collector cards, of which Gregg Love, a small saver, bought a plot on the Rally site, which shares the ownership of a valuable object between thousands of investors.

In two years, his capital has increased by 30% and he thinks he can do better.

This principle of fractional ownership energizes the entire collecting market, as well as “the perception of art as a hedge against inflation”, explains Joan Robledo-Palop, founder of Zeit Contemporary Art. The two factors have “brought about a new generation of collectors whose number would have been unimaginable five years ago”.

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