I was pretty shocked when I learned recently that 2022 was the only the 5th year ever that U.S. stocks and bonds both declined in the same calendar year.
Here's the full data set from Aswath Damodaran at NYU: https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
In taking a look at that table, I realized something subtle: The U.S. effectively defaulted on its debts within 2-3 years following the 1931 and 1969 occurrences.
"But the U.S. has never defaulted on its debts!?" Au contraire, mon frere...
What I'm referring to, specifically, are the currency devaluations of 1934 and 1971.
In 1934, three years after both stocks and declined for the first time in U.S. history, the Gold Reserve Act revalued gold from $20.67/oz to $35/oz, defaulting on the U.S. government's promise to exchange USD for gold at a fixed rate of $20.67/oz. This is effectively a debt default. And, what's more, the U.S. did this one year after confiscating all the gold held by private citizens, punishable by fines and/or imprisonment, in return for $20.67/oz via Executive Order 6102. Nice move from our government!
In 1971, two years after both stocks and bonds declined for just the third time in U.S. history, President Nixon famously took the USD off the gold standard, defaulting on the government's long-standing promise to exchange USD for gold at a fixed rate of $35/oz. Another historic currency devaluation occuring in the wake of U.S. stocks and bonds both declining.
The only other time U.S. stocks and bonds both declined outside of these two occurences was in the middle of WWII...until 2018.
And wouldn't you know it, within two years of the 2018 occurence we had another, massive if stealth currency devaulation in the form of QE expanding the Fed's balance sheet from ~$4 trillion to ~$9 trillion in 2020-2021. Now, I'll admit, the global pandemic represents a pretty significant confounding variable. And, a -0.02% decline for bonds in 2018 barely makes the cut. But, luckily (or not) we're going to get to get another test of the money_printer_go_brrr hypothesis in the next 2-3 years.
That's because in 2022, U.S. stocks and bonds both declined for just the 5th time ever. And what's more, the traditional 60/40 stock/bond portfolio had its third-worst performance ever), trailing only 1931 (captured above) and 1937.
In case you were wondering, asset prices have faired pretty well in the wake of such declines historically:
*note: gold was fixed at $35/oz from 1934-1971, hence the flat performance in the 5 years post 1941
It is my prediction that history repeats, and the U.S. will again need to devalue their currency in the wake of 2022's historically poor performance for domestic stock and bond markets.
Although it won't be as explicit as revaluing gold, or depegging from gold entirely, I think there will be more stealth devaluation in the form of QE, or whatever the Fed decides to call it this time.
After all, it's just math!
And, I also predict that while the path is uncertain and potentially frought with risk and volatility, the ultimate outcome on the other side will again be phenomenal (if only nominal!) across the board asset class performance.