Stocks and bonds around the world have rallied atypically together since the start of the year, rewarding investors both bullish and bearish on the direction of global growth.
“The Fed is between a rock and a hard place,” said Kathleen Gaffney, a portfolio manager at Eaton Vance Management in Boston. “They can’t go lower because there are signs that inflation is rising and they can’t go higher because of global political uncertainty. It leaves the market on pause.” The S&P 500 and Europe’s STOXX 600 are up almost 16 per cent year to date, while stock indexes in China are up nearly 30 per cent.
Further uncertainty due to the economic impact of the UK leaving the European Union, which has now been pushed back to Oct. 31, or a deterioration in U.S.-China trade talks could be a “shock to the system” and derail both stocks and bonds, she said.