Well, we’re not in no man’s land anymore! The markets turned hard over the past few weeks on the threat that inflation would stay higher for longer and that the fed might raise interest rates farther than expected.


This took down the price of stocks and bonds, and not even value stocks were spared. And so goes the credit contraction: in dollar terms, most assets correlated to the downside.  How long will that last?


We think the worst of the problem may be over for high quality bonds. They may begin to provide diversification from stocks fairly soon.


Thus far, the markets have punished investments with interest rate sensitivity, but they haven’t been too concerned about business risk or credit risk.  That being the case, longer term treasuries and high quality corporate bonds are down almost 20% just like stocks.  We sit here with the 2 year treasury yield around 3.2%. We speculate those rates should top out around 4%, although inflation will have a lot to say about that.  Here’s the change in bond prices this year:

(Source: Koyfin)


So, what could you Nibble at now:

  • Shorter term treasuries with 2-3 year maturities. That’s like buying a 2 year CD with an interest rate over 3%. Not bad.
  • Investment grade corporate bonds. You can buy 4 or 5 year maturities with interest rates above 4%. They don’t have much credit risk or much interest rate sensitivity, now that yields are higher. Even if they trade lower, you can hold them to maturity and pretty much know what to expect for your return.
  • Growth stocks—here’s where  you begin to nibble. Large Cap Growth is down 35% year to date.  That’s a nice place to start. The process isn’t over, which is why you nibble.  Buy a part of the investment you’d like to own, but don’t put all your money to work. Be prepared to buy a couple times.
  • Dividend paying stocks came down, but probably will need to adjust further as interest rates move higher. For instance, I looked at a utility this week. The dividend was 4%. Last week, the dividend yield was only 3.5%. What changed? The price dropped $10 per share. Again, nibble. Utilities could trade lower as bond yields rise. Perhaps if utility yield approach 4.5%-5%, you can get a nice rate of return with relatively low risk.

When can you come in aggressively and Bite off larger positions:

  • If interest rates approach 4%
  • If most stocks have set 52 week lows and fewer and fewer stocks are setting new lows
  • If nearly all investments sell off together because of margin calls and forced selling
  • If oil prices level off or fall steadily
  • If inflation changes and really starts to move lower
  • If the fed adopts a neutral policy and won’t raise rates further

When can you put almost all of your money to work and swallow what you were chasing? When can you buy the more aggressive investments like small cap biotech’s or cryptocurrencies?

  • When corporations cut expenses including layoffs
  • When the fed adopts stimulative policy, lowering interest rates and maintains their balance sheet
  • When the war in Ukraine is over
  • When it’s difficult to forecast earnings and thus to price investments
  • When mortgage rates fall

As you can see, we think there’s still more of the process in front of us. Perhaps both stock and bond prices will go lower. At the same time, we speculate that high quality investments made now could drive a positive rate of return within 1-2 years.  A lot of prices are fair to good. However, the markets tend to overshoot to the upside and to the downside.

So, where are we? Halfway through?  Three quarters? Nobody knows how long it will take. However, with prices down, it’s easier to find risk/ reward tradeoffs that make sense for both conservative and aggressive investors.

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.


A bond is a fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of bonds are debtholders, or creditors, of the issuer.

Jeremy L. Strickler, CFP®

Portfolio Manager