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Risky business

Quantitative tightening puts pressure on risk assets.

Published August 11 2022
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Video Transcript
Question: How should fixed-income investors be positioned in the current environment?
Donald Ellenberger: I think it makes sense to stay up in quality and probably down in duration, even though rates have risen a lot and spreads have widened a lot. Here's an interesting and I think a very powerful statistic. If you look at the correlation between the S&P 500 and the size of the Fed's balance sheet, over the past 12 years, it's 91%. So as the Fed's balance sheet grew through quantitative easing, stocks went up almost lockstep and remember, quantitative easing creates money, it does it out of thin air, and a lot of that money went into the stock market. But now we have the opposite of that. Now, we have quantitative tightening and quantitative tightening destroys money, and I don't think that could be good for risk assets.
Tags Fixed Income . Markets/Economy . Inflation .

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Past performance is no guarantee of future results.

Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.

Duration is a measure of a security's price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities of shorter durations.

S&P 500 Index: An unmanaged capitalization-weighted index of 500 stocks designated to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Indexes are unmanaged and investments cannot be made in an index.

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