Stock/bond correlation regime — the end of the 60/40 crutch (new) Temperamental era ◆ — yields key off inflation again, so bonds stop hedging stocks

2026-SEP-01 (Sonders/Schwab, Master Investor): the single relationship that decides whether a stock/bond mix diversifies at all is the correlation between bond yields and stock prices, and it is driven by what yields are keying off. In the great moderation (late 1990s → the 2022 inflation spike) yields keyed off growth — low inflation volatility, falling rates, globalization (China into the WTO, 2001) — so yields and stock prices were positively correlated, "sort of nirvana," and bond prices moved inversely to stocks. That inverse price relationship "gave rise to the simplicity of models like 60/40." In the temperamental era (mid-to-late 1960s → late 1990s) yields keyed off inflation: shorter cycles, more frequent recessions, and yields moving opposite stock prices — which means bond prices and stock prices move together and the hedge fails when it is needed. Her call: "we're now back in pretty deep negative correlation territory between bond yields and stock prices," and this secular question matters far more than the tactical one of how fast the 10-year moves. Mitigant: continued democratization of access to non-correlated asset classes leaves individual investors better equipped than 1970s investors were. (2026-SEP-01, Paulo Macro) He refuses to assume duration hedges the next escalation and writes out three cross-asset maps instead: the March redux ("Stocks down, Bonds down/Yields up, Gold down, USD up, Oil up"); a different Part Deux ("Stocks down, Bonds up/Yields down, USD down, Oil up… if the flight to safety is bonds rather than gold"); and a third, "Gold Up in a 'get me into safety — bonds, gold, cash'." The tiebreak he watches is whether gold and the long bond move together or apart, and whether the USD rises or falls. Dillian (2026-SEP-03): his published answer to the same problem is to stop relying on two assets — the Awesome Portfolio is “stocks, bonds, gold, cash, and real estate in equal proportions,” costing “about 1 to two percentage points in performance” while “your volatility is cut in half” and the worst historical drawdown is 12% against roughly 40% for the S&P in a calendar year. The argument is behavioural, not correlational: a large drawdown means you stay miserable “until you get back up to the high water mark” and “there is a decent chance that you’re just going to tap out and sell … and that’s the worst thing you can possibly do because then you stop compounding.” His honest concession: “if you buy the S&P 500, you will have more money when you retire … That’s if you can hang on.” 2026-SEP-08 (Jared Dillian, Excess Returns): the 60/40 answer is more sleeves, not a fix. In 2022 his five-sleeve portfolio fell 11.8% against 60/40's ~20% because cash and real estate held while stocks, bonds and gold fell together. Generalized as non-stationarity: "the markets are a game where the rules are constantly changing mostly in the form of correlation" — gold's current negative correlation to oil "started when the war started" and will break. 2026-SEP-08 (Larry McDonald, Julia La Roche): "everyone kind of knows not to trust risk parity" now — the 60/40 ETF is unchanged since 2021 — and that is precisely why he argues this is not another SVB. The danger is a breakout nobody is positioned for, not a crowded duration trade waiting to unwind. 2026-SEP-04 — Fraser Jenkins (AllianceBernstein) puts the longest sample on it: the negative stock/bond correlation of the last ~20 years that made 60/40 "a no-brainer diversifier" is the anomaly — "if you extend the chart 200 years prior to the last 20 years that correlation was positive almost all the time," so the post-2022 positive correlation "actually looks more normal." The sizing number: bonds still help at a +0.2 hundred-year average, "it's just not the no-brainer it was at a minus 0.4." Mechanism: the mid-80s-onward era was a one-off (benign inflation, bond yields starting from an extreme high, labour-force growth from demographics and globalization); today's forces — deglobalization, high starting debt, the temptation of debt monetization, climate — push inflation up without pushing growth up, and that two-axis inversion is what flips the equity/bond relationship. Structural add: the pension system moving DB to DC cuts demand for long-duration nominal assets. Verdict: "60/40 is in no way a passive default asset allocation strategy." Wigglesworth (The Meb Faber Show, 2026-SEP-11) — the haven sits in leveraged hands. Too much of the Treasury market is held by hedge funds running the cash-futures basis trade, levered "10, 20, 30, 50" (anecdotally 100) times through a ~$12trn repo market; the UK shows the same pattern, one reason gilts are more volatile. "It's where you hide when things are on fire elsewhere. Well, that's become a little bit more unsafe because it's held by more leveraged hands." 2026-SEP-15 (David Hay): 'severe bond bear markets act as a powerful headwind on stock prices,' so six years of stocks rallying through a tenfold 10-yr yield rise is 'highly unusual' — 'there's never been such a pronounced performance gap between stocks and bonds' (Paulsen, trailing 76-month relative total return since 1926). Dan Niles (2026-SEP-04): bonds can't be the shelter when they are part of the risk — "part of the reason we're worried about the stock market is because bonds are selling off. So, it's hard to say, hey, you should go sit in bonds" — so he picks money-market cash, as in 2022 when stocks and bonds fell together. 2026-SEP-19 (Jeff Weniger): the S&P rallied through all six notable long-end bond selloffs from Dec-2023 to midsummer 2026. But over the last ~30 late-summer sessions, stocks and bonds moved in the same direction 60-65% of the time: "whether we like it or not, the stock market right now cares" about bonds. He compares it to the 2022 60/40 bust-up.