Game of Trades: Investors Don’t Know What’s Coming

Monthly inflation has been ticking higher, moving to a 0.4% monthly increase in March. That could be a sign that inflation is no longer trending lower. In fact, it may now be making a comeback.

That’s a trend that occurred with the double-dip inflation of the 1970s. The first wave in the mid-1970s declined, only to come roaring back later in the decade amid high government spending and a commodity price shock.

Similar events could occur today. If such a trend is underway, many assets will see a negative reaction.

The worst-performing asset amid another wave of inflation is likely in the bond market. The surging inflation of 2020-2023 saw the bond market face its sharpest losses in history.

Over those few years, bonds lost an average of 51% amid soaring yields, and the largest drop since the 1980s.

Plus, rising bond yields led to three negative-returning years for bond investors in a row, a first in American history.

With most investors owning a mix of stocks and bonds, a typical portfolio sold off worse during 2022’s bear market thanks to the pain of owning both assets.

To avoid the possibility of another inflation wave and higher inflation, investors may want to look at shorter-dated bonds instead. They have the lowest price risk.

And at current bond yields over 4.5%, investors can, for now, get a real return after inflation.

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