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Tag: Off the charts

  • Consumers are spending, but Wall Street and businesses expect a tighter squeeze ahead

    Consumers are spending, but Wall Street and businesses expect a tighter squeeze ahead

    NEW YORK (AP) — Investors and a wide range of retailers are taking a dim view of the remainder of 2023 and expect consumers to buckle under pressure from inflation.

    Macy’s, Target and Dollar General are warning investors about weaker sales through the rest of the year as consumers shift their spending to essentials. Investors themselves have sold off shares of key retailers, with stock prices for many companies down substantially in a year when the broader market is making solid gains.

    The concerns are growing despite resilient retail sales reports from the government. The latest update for May showed surprising growth despite pressure from still-high inflation and rising borrowing costs. The Commerce Department reported that retail sales rose 0.3% in May, surprising analysts who expected a slight dip.

    The gains in May, though, came mostly from auto and parts dealers. Sales at electronics and furniture stores showed only modest gains, while sales were unchanged at clothing retailers.

    Overall, consumers have been more cautious and that will become more visible in sales results throughout the rest of 2023 and into 2024, said Lydia Boussour, senior economist at EY, the global organization behind Ernst & Young.

    “We expect the slowdown in consumer spending to accelerate in the second half of the year as labor market gains falter, the buffer from excess savings shrinks and credit conditions tighten further,” she said.

    Companies that make consumer products, essentials and clothing have all been warning about a tough road ahead. Newell Brands, maker of Rubbermaid containers and Mr. Coffee coffee makers, expects continued sales pressure for at least another 12 months.

    “We continue to expect a challenging macroeconomic environment characterized by high to moderate inflation which will likely continue to constrain consumer discretionary spending,” said Mark J. Erceg, chief financial officer at Newell Brands, during a conference in June.

    Earlier in June, Macy’s slashed its forecast for the year after sales weakened in the first quarter. In May, Home Depot cut its profit and sales outlook for the year.

    Even companies making essential products that are seemingly recession proof are growing worried.

    “We tend to fare well during these times, but it’s something we’re watching very carefully,” Clorox CEO Linda Rendle said recently.

    The monthly retail sales report from the government offers only a partial look at consumer spending. It excludes many services, including healthcare, travel and hotel lodging. Investors are more confident in sales prospects for many of those companies, judging by stock performances so far this year. United Airlines, American Airlines and Delta Air Lines are all up about 30% or more for the year, as is Booking Holdings Inc.

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  • As profit recession hits, Wall Street hopes it’s the bottom

    As profit recession hits, Wall Street hopes it’s the bottom

    NEW YORK (AP) — Profits are falling for companies, and the only question is how much worse they will get.

    Big U.S. companies are lining up to report how much profit they made during the first three months of the year, with the reporting season kicking off in earnest on Thursday and Friday. The widespread expectation is that companies across the S&P 500 will report the biggest drop in earnings since the spring of 2020. That’s when the pandemic was demolishing the global economy.

    Still-high inflation, a struggling manufacturing industry and signs of slowdown elsewhere in the economy mean analysts expect S&P 500 companies to report a 6.6% drop in earnings per share from a year earlier. Besides being the sharpest drop in nearly three years, it would also mark a second straight quarter of profit decline for the S&P 500, according to FactSet. That’s something investors call a “profits recession.”

    The good news for companies is that many analysts see this as the bottom. They’re forecasting profit declines will moderate from here, before flipping back to growth later this year.

    The bad news for companies is many skeptics think such forecasts are way too optimistic.

    Many of the forecasts for first-quarter results don’t account for much damage from the banking industry’s struggles. A crisis of confidence last month unleashed massive movements of cash through the banking system, and the worry is that all the turmoil could lead banks to pull back on lending.

    That would come on top of already high interest rates meant to drive inflation lower, and it could result in lower hiring, growth and economic activity overall.

    “I think we’re unlikely to see anything in the numbers” from banking woes in the first quarter, said Zach Hill, head of portfolio management at Horizon Investments. “What we’re really going to be looking for is commentary on the rest of the year” from CEOs” both on the bank side and across a lot of the consumer-facing companies to see where things are on that front.”

    Analysts on Wall Street are still forecasting S&P 500 companies will eke out 1% growth in earnings per share over the whole year, versus 2022, according to FactSet.

    “That’s way too too high,” said Amanda Agati, chief investment officer of PNC Asset Management Group.

    The economy has been slowing and may fall into a recession this year. Even mild recessions have historically seen earnings fall roughly 10% from peak to trough, Agati said.

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  • Wall Street bets on better days ahead for US homebuilders

    Wall Street bets on better days ahead for US homebuilders

    LOS ANGELES (AP) — Homebuilder stocks are on a tear as investors bet that a dearth of previously occupied homes on the market and moderating mortgage rates will boost builders’ prospects in the spring homebuying season.

    KB Home, PulteGroup and Tri Pointe Homes are among more than a dozen U.S. homebuilders whose stock price is up by more than 20% this year. One prominent exchange traded fund, the SPDR S&P Homebuilders ETF, is up nearly 10%. Meanwhile, the benchmark S&P 500 index is up about 7%.

    “We think homebuilding stocks may be looking ahead, perhaps crossing the valley from recession to potential recovery in (the second half of) 2023,” CFRA analyst Kenneth Leon wrote in a recent research note.

    Builders are coming off a lousy 2022 as mortgage rates skyrocketed to a two-decade high, sidelining many would-be homebuyers. The surge in borrowing costs after years of soaring home prices pulled the housing market into a deep slump. Sales of new U.S. homes fell about 17% last year from a year earlier to the lowest seasonally adjusted annual rate in four years, according to the Commerce Department.

    At the expense of less healthy profit margins, homebuilders reduced prices and began offering incentives like covering buyers’ closing costs.

    An easing in average mortgage rates this year has also helped entice some buyers. After climbing to an average of 7.08% in November, the rate on a 30-year home loan averaged around 6.37% in the first three months of this year, according to mortgage buyer Freddie Mac.

    New home sales rose on a monthly basis in December, January and February, though sales in February were still down 19% from a year earlier.

    While many economists project this will be another down year for sales of new and existing homes, some builders are dialing back buyer incentives and raising prices. They’re encouraged by the modest easing in mortgage rates and the prospect of capitalizing on demand this spring at a time when the number of existing homes for sale remains near historic lows.

    Consider, from 2000 until the pandemic, new homes represented about 11% of all homes for sale. This year, that’s risen to 27%.

    “We’re so far below where we were pre-Covid in terms of existing home inventories, the notion is the builders have a chance to take market share in this environment,” said Wedbush analyst Jay McCanless, who has “Outperform” ratings on several builders, including KB Home, Taylor Morrison and Tri Pointe Homes.

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  • After last year’s stunning failure, bonds show up for safety

    After last year’s stunning failure, bonds show up for safety

    NEW YORK (AP) — Suddenly, bonds are again living up to their reputation as the safe part of an investor’s portfolio.

    As stocks sank worldwide over the last week on worries about the banking system following the second- and third-largest U.S. bank failures in history, bonds shot up in price. That offered some protection to any investor with a mixed set of stocks and bonds in their portfolio, as most advisers suggest.

    Through the middle of March, the largest U.S. bond fund, Vanguard’s Total Bond Market Index fund, returned 2% while the largest U.S. stock fund lost 2.7%. That may not sound like a big deal, but it’s a marked return to form for bonds.

    Last year, they were anything but the safe part of a saver’s nest egg. Their prices plunged on fears about the highest inflation in generations and what the Federal Reserve was doing about it.

    Inflation by itself makes bonds less attractive because it means the fixed payments they make will buy less stuff in the future as prices rise.

    But the barrage of hikes to interest rates instituted by the Fed in hopes of getting inflation under control also inflicted pain. The Fed has vaulted its key overnight rate to a range of 4.50% to 4.75%, up from virtually zero at the start of last year. That helped pull yields higher across the bond market.

    When that happens, newly issued bonds making higher interest payments suddenly look much more attractive than the older bonds already sitting in investors’ portfolios. That makes prices in the market for those older bonds drop. And bond funds have to record such changes in price.

    What made things worse for investors was that bond prices fell last year at the same time stocks did. The hope in having a diversified set of investments is that some will rise when others fall, keeping the overall portfolio safer. That didn’t happen last year.

    This month, though, bonds rallied as worries spread about the banking system following the collapse of Silicon Valley Bank. That helped to buffer anyone who was also invested in stocks or commodities.

    “These are the safe haven assets that are actually acting like safe havens,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial. “You couldn’t say that last year.”

    Of course, the rally means that bonds are carrying lower yields than just a week ago. That means they’ll pay a little bit less in income than before and have a little smaller cushion for future price drops.

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  • Plunging natural gas prices relieve inflation pressure

    Plunging natural gas prices relieve inflation pressure

    NEW YORK (AP) — The price of natural gas used to heat homes and generate electricity is plunging this year, thanks to a mild winter in the U.S. and Europe — bringing some relief to consumers and helping drive down inflation.

    The fuel, which in the U.S. is extracted mainly from shale deposits in Texas and around Pennsylvania, accounts for nearly 25% of residential energy needs, making it a big driver in last year’s worst bout of inflation in four decades. Since the start of 2023, U.S. natural gas prices have fallen 40% and Europe’s prices are not far behind.

    Much warmer than expected weather throughout Europe and North America played a big part in allowing European supplies to hold out amid the ongoing conflict in Ukraine. The winter has been mild enough that large swaths of the Alps have been mostly green instead of white and typically cold and snowy sections of the U.S. have spent most of the winter well above the freezing mark.

    The Energy Department now expects heating bills for U.S. households that use natural gas to rise by 12% this winter instead of 28% it forecast in October. The warm winter has also helped inventories in the U.S., which are expected to close March 16% above the five-year average.

    The sharp drop in energy prices comes amid a broader easing of inflation as the Federal Reserve and other central banks fight high prices by raising interest rates. U.S. inflation is at about 6.4%, well below a year ago but still far above the central bank’s 2% target. The Fed says it’ll stay focused on fighting inflation until it’s sure prices are on a sustained downward path.

    Energy companies that made record profits last year are now feeling the pinch of falling prices. Natural gas producer EQT Corp. is down more than 8% this year after gaining 55% in 2022. Chesapeake Energy Corp. has lost more than 11% in 2023 after surging 46% last year.

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  • Wall Street braces for earnings to get hit by inflation

    Wall Street braces for earnings to get hit by inflation

    NEW YORK (AP) — Wall Street expects companies to face a reckoning with the realities of hot inflation, a slowing economy and rising interest rates in the latest round of earnings results.

    Analysts are forecasting an earnings contraction of about 3.5% for the fourth quarter, according to FactSet. That estimate, as of the end of last year, is an about-face from forecasts back in September of 3.5% growth and a sharp reversal from 8.5% growth forecasts in June.

    The dismal forecast for the fourth quarter follows is part of a trend of shrinking earnings growth throughout 2022 as inflation tightened its grip on consumers. Spending remained strong in many retail areas and companies raised prices on everything from food to clothing to offset the impact of higher raw material costs and inflation in general. Many companies went further than just maintaining profits and increased their profit margins.

    Corporate profits, though, aren’t likely going to continue bucking an economy that showed clear signs of damage during the fourth quarter, particularly with consumers increasingly cutting back on spending. Many analysts have been forecasting that the economy will slip into some level of recession in 2023 and company profits are starting to reflect that. The Federal Reserve’s aggressive fight against inflation carries the risk of slowing the economy too much.

    Morgan Stanley, in a December report, warned investors to brace for a rough round of corporate earnings in the coming month and into the rest of 2023.

    “The fixation on inflation and the Fed continues, but markets appear to have moved past it and onto the real concern— earnings growth/recession,” the report said. “Rates and inflation may have peaked but we see that as a warning sign for profitability, a reality we believe is still underappreciated but can no longer be ignored.”

    Analysts expect communications companies and technology firms to be among the biggest losers during the fourth quarter. Lower demand has been cutting into technology product sales and that has in turn led to warnings from chipmakers and other companies. Computer maker HP and chipmaker Micron have both announced job cuts as a part of their plans to deal with weaker demand. Analysts are forecasting a slight earnings contraction for both companies.

    The weakening economy has cut into advertising budgets, which have raised concerns for companies including Facebook and Google. Retailers and other companies that rely on discretionary spending are also expected to get hit hard in the fourth quarter.

    Analyst expect energy companies to keep powering past other sectors as the big earnings winners during the fourth quarter. The sector has outperformed all others in 2022 amid higher oil and natural gas prices.

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  • Wall Street may get much worse in 2023 before getting better

    Wall Street may get much worse in 2023 before getting better

    NEW YORK (AP) — The worst may be yet to come for the stock market.

    Wall Street’s mini-rebound since mid-October has recovered some of the index’s sharp losses from the first 10 months of the year. It closed Monday a shade below 4,000, up more than 10% since its bottom two months earlier.

    Many analysts expect stocks to end 2023 at least around this range, if not a bit higher, after the Federal Reserve finally stops hiking interest rates in order to get high inflation under control. But before getting to that end point, much of Wall Street is also forecasting stock prices to fall sharply in the interim.

    Consider Morgan Stanley, which says the S&P 500 could drop all the way to a range between 3,000 and 3,300 during the first three months of the new year. That would mean it loses up to a quarter of its value from Monday’s closing level. The low end of that range would also be 37.5% below the record set in early 2022.

    The reason for the bank’s pessimism is that its strategists forecast much weaker corporate profits than the rest of Wall Street. On the revenue side, businesses are feeling pressure as manufacturing and other areas of the economy are weakening. At the same time, Morgan Stanley says profits will get squeezed on the other end by higher wage costs after businesses had to give workers’ raises.

    Corporate profits will likely be coming off record levels from 2022, which helped companies return more cash to investors through dividends and stock buybacks.

    To be sure, the strategists led by Michael Wilson say the S&P 500 could end 2023 at 3,900 if things go mostly as they expect, not far from its current level.

    Strategists at Goldman Sachs also forecast a trough during the first half of the year, possibly at 3,600. That would mark a nearly 10% drop from Monday’s close, and it’s based on Goldman Sachs’ expectation that the economy can avoid a recession.

    If the economy does contract as many on Wall Street expect, Goldman strategists led by David Kostin said the S&P 500 could fall all the way to 3,100.

    At Deutsche Bank, strategists see the U.S. economy falling into a recession in the second half of 2023. That could pull the S&P 500 down to 3,250 before it hits bottom about halfway through the recession, which the German bank sees lasting the last six months of the year. Then, the S&P 500 could end the year as high as 4,500 if stocks follow their typical playbook around recessions, say the strategists led by Binky Chadha.

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  • Fed matches year of hot inflation with feverish rate hikes

    Fed matches year of hot inflation with feverish rate hikes

    NEW YORK (AP) — Wall Street expects the impact of the Federal Reserve’s most aggressive year of interest rate hikes in at least three decades to continue to be felt through next year.

    The central bank’s plan to fight stubbornly high prices on everything from food to clothing has been the central focus for Wall Street in 2022. The Fed’s benchmark rate currently stands at 3.75% to 4%, up from close to zero in March. That marks the sharpest rise since at least 1990 and the rate is expected to increase by another half-percentage point at the Fed’s final policy meeting in December. It could go higher than 5% in 2023.

    As the economy bounced back from the virus pandemic, supply chains couldn’t keep up with demand. A spike in oil and gasoline prices earlier in the year added more fuel to inflation. The Fed has been very clear it will keep raising rates until it sees inflation cooling. That’s made borrowing much more difficult and weighed heavily on stocks.

    Companies with high valuations, especially technology firms, became less attractive as interest rate hikes made bond yields more lucrative. Major indexes have been extremely unsteady throughout the year as investors’ hopes for a Fed pivot to a less aggressive policy have been repeatedly dashed by more hot readings on inflation.

    Analysts and economists have grown skeptical that the Fed will be able to tame inflation without stalling the economy into a recession.

    “Recession looks more and more likely for the upcoming year and if the Fed responds accordingly, a recession may turn out to be short and shallow,” said Jeffrey Roach, chief economist for LPL Financial.

    The bond market has been signaling that a recession is likely on the horizon. Low yields on long-term bonds are a sign that investors expect weakness in the economy.

    The Fed has said that it may tone down the size of its rate hikes going into 2023, but that it might have to ultimately raise rates higher than expected to get inflation back under control.

    Inflation was 7.7% in October compared to a year ago. While still extremely hot, it has been easing over the last few months.

    Analysts expect that to continue, but the lag time between rate increases and their impact on inflation could mean a long road ahead for the Fed.

    “Investors should prepare for further setbacks before positioning for a sustained turn in market sentiment,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

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  • High mortgage rates send homebuyers scrambling for relief

    High mortgage rates send homebuyers scrambling for relief

    LOS ANGELES (AP) — Mortgage rates are more than double what they were a year ago, so many homebuyers are looking for ways to put off some of the pain for a few years.

    The trend has driven adjustable-rate mortgages, or ARMs, to the highest usage in over a decade.

    A recent snapshot by the Mortgage Bankers Association showed that ARMs accounted for 12.8% of all home loan applications in the week ended Oct. 14. The last time these loans made up a bigger share of all mortgage applications was in the first week of March 2008.

    At the start of the year ARMs represented only 3.1% of all mortgage applications. The average rate on a 30-year fixed-rate mortgage then was 3.22%, while last month that rate topped 7% — the highest since 2002.

    This week, the average rate for a 30-year mortgage fell to 6.58 %, according to mortgage buyer Freddie Mac. A year ago, it was 3.1%.

    Mortgage rates’ swift rise follows a sharp increase in the yield on the 10-year Treasury note, which has climbed amid expectations of higher interest rates overall as the Federal Reserve has hiked its short-term rate in a bid to crush the highest inflation in decades.

    As mortgage rates rise, they can add hundreds of dollars to monthly mortgage payments. That’s a significant hurdle for many would-be homebuyers, resulting in this year’s housing downturn. Last month, sales of previously occupied U.S. homes fell for the ninth consecutive month. Annual sales are running at the slowest pre-pandemic pace in more than 10 years.

    For house hunters still able to afford a home at current elevated mortgage rates, reducing their monthly payments with an adjustable-rate loan for the first few years can help give them financial flexibility.

    A homebuyer who takes out a typical 5/1 ARM, for example, will have a low, fixed rate for the first five years of the loan. After that, the loan shifts to an adjustable interest rate, which could be higher or lower, until the debt is paid off, or the buyer refinances the loan.

    Another approach that’s become popular recently is buying down the interest rate on a fixed-rate 30-year loan for the first two or three years.

    Buying down the rate on a 30-year mortgage can make monthly payments more manageable -— something both homebuilders and homeowners are offering to entice buyers as the housing market slows.

    Let’s say a borrower takes out a 30-year mortgage with a 6% fixed rate. With what’s known as a 3-2-1 rate buydown, that homebuyer’s interest rate would be 3% in the first year of the loan, 4% in the second and 5% in the third, saving them potentially thousands of dollars along the way.

    The borrower must still qualify for the full monthly payment before the buydown adjustment, however.

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  • Trimming the fat: inflation finally hitting profit margins

    Trimming the fat: inflation finally hitting profit margins

    NEW YORK (AP) — Corporate profits have withstood raging inflation over much of the last year, but those good times may be ending.

    Profits stayed fat even as companies’ costs rose thanks to one simple trick: Businesses boosted the prices they charged customers by more than their own costs rose.

    Now, though, more companies are seeing their costs rise faster than their revenues. In the parlance of finance executives, their margins are getting squeezed, and that’s acting as a drag on their profits.

    To be sure, corporate profits are still near record highs. Companies in the S&P 500 are in the midst of reporting overall growth of roughly 2% for the summer from a year earlier. Many companies also say they still have the power to hold the line on prices for their products, if not raise them further. But some signs of stress are beginning to show, and analysts say even faster margin declines may be on the way given how fragile the economy is.

    Consider LyondellBasell, an international chemical company. Its chief financial officer recently said the company saw margins get squeezed last quarter “across all segments due to rising costs and weaker global demand.”

    Coffee giant Starbucks, meanwhile, was one of the many companies that successfully pushed through price increases over the last year with no drop-off in customer loyalty or transactions because of them. But when executives earlier this month discussed their latest results, interim CEO Howard Schultz said, “We’re certainly not going to try and raise prices during this time.”

    Profit margins for S&P 500 companies during the summer look like they dipped to 11.9%, according to FactSet. That essentially means they kept $119 of every $1,000 in sales as profit. That’s down from $122 three months earlier and from $129 a year earlier, but still above the average of $113 over the last five years.

    One of the biggest reasons for the fall in margins is the recent rise in pay that workers have won recently. Total compensation for workers in the private industry rose 5.2% in the summer from a year earlier. Once workers get such increases, companies find it difficult to take them away.

    “The combination of sticky wage costs and slowing end market/consumer pricing has been evident in recent macro data and loudly signals margin pressure,” strategists at Morgan Stanley wrote in a recent report.

    They’re more pessimistic about trends for profit margins than most of Wall Street, forecasting a drop of 1.5% percentage points in 2023. That’s why they see a fall of 11% for profits at S&P 500 companies next year.

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  • Energy stocks get oil price support as recession looms

    Energy stocks get oil price support as recession looms

    NEW YORK (AP) — Surging oil prices charged energy stocks through 2022 and could keep supporting the sector despite a looming recession and stubbornly hot inflation squeezing consumers.

    The sector’s 50% gain is a standout in the S&P 500 this year while every other sector has lost ground. Big names like Exxon Mobil are up even more, with gains of nearly 75%. It’s a stark contrast to the benchmark index’s 20% slide.

    The sector’s sharp gains were kicked off earlier this year after Russia’s invasion of Ukraine raised worries about the oil supply, with inflation already squeezing global economies. U.S. crude oil prices are up 13% for the year, around $85 per barrel. The U.S. government expects prices to hit $95 per barrel next year, which could potentially support energy stocks even through a recession.

    Oil prices got another boost this month when the OPEC+ alliance of oil-exporting countries decided to sharply cut production to support prices. Longer-term trends, such as the shift to renewables, have also kept companies from ramping up drilling. That’s helped maintain a disconnect between still high demand and low supplies.

    “Producers are getting signals to stay disciplined,” said John LaForge, head of real asset strategy at Wells Fargo Investment Institute. “They see the future, and drilling and completion of wells are built on a 10-year timeframe and producers see it will be structurally different in 10 years.”

    That long-term view has helped maintain a disconnect between still high demand and low supplies.

    “A recession takes a backseat to the longer-term secular trend of structurally undersupplied oil,” LaForge said.

    Analysts and economists have been warning about a likely recession ahead. Meanwhile major companies have raised the alarm about weakening demand heading into 2023. The Federal Reserve, the International Monetary Fund and others have all warned that economies are in for more pain from inflation.

    The U.S. economy contracted in the first half of the year, and consumer confidence and spending are slipping. Inflation remains extremely hot and the Fed is expected to continue raising interest rates in an effort to tame high prices.

    That’s raised the risk of inducing a recession by slamming the brakes too hard on the economy. The severity of any recession will also have an impact on the energy sector. A light recession might not change habits too much, analysts have said, while a more severe recession could crimp spending on fuel and other essentials.

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  • Rare bear market in bonds strips investors of safe haven

    Rare bear market in bonds strips investors of safe haven

    NEW YORK (AP) — A rare bear market in bonds hasn’t gotten much attention, but it may be inflicting more pain on investors than the downturns for stocks, cryptocurrencies and other investments.

    Investment-grade bonds — those issued by governments and corporations with good credit ratings — have fallen more than 20% from their peak in January 2021. That may not sound like a big deal when large U.S. stocks tumbled 20% within roughly six months and Bitcoin halved in value this year alone.

    But bonds are supposed to be the safe part of any portfolio. Investors expect them to offer stability when stocks and other risky investments take one of their notoriously sharp swings. Now even this part of investors’ portfolios is taking on water.

    “Global bonds have entered the first bear market in a generation,” UBS strategists wrote in a recent report.

    This year’s returns for the widely followed Bloomberg Global Aggregate index of high-quality bonds look to be the worst since its 1990 inception. It could be one of the worst years ever for bonds, if not the worst.

    Bond prices around the world have been falling as central banks rush to raise interest rates in hopes of beating back the high inflation damaging economies globally.

    Sweden’s central bank this past week more than doubled its key interest rate to 1.75%, for example. The European Central Bank recently raised its key rate by a record amount, three-quarters of a percentage point. In Washington, the Federal Reserve announced its third such hike of the year this past week.

    When interest rates rise, they knock down prices for older bonds already sitting in investors’ portfolios. That’s because the older bonds’ yields suddenly look less attractive than what newer bonds are offering. Some bonds are protected from such price swings, such as I-bonds issued by the U.S. government, but access to them is limited.

    Rates have risen quickly this year, with the Fed hiking its benchmark overnight rate up to a range of 3% to 3.25% from virtually zero at the start of the year. That’s helped yields hit their highest levels for two-year Treasurys since 2007 and for 10-year Treasurys since 2011.

    The widespread expectation is that the Fed and other central banks will keep raising rates, which should maintain pressure on bonds.

    Many professional investors say that despite these challenges, bonds should still be a safe part of any portfolio. That’s because other options look even more risky.

    Rising rates can hurt stock prices even more than bonds if corporate profits don’t grow quickly, and analysts are now slashing their forecasts for upcoming profits. Gold’s price is also falling because of rising rates. Unlike bonds, gold doesn’t pay its investors any interest.

    Plus, many investors hope the sharpest rate hikes may now be in the past. And if a recession does indeed hit, which some economists are predicting, bonds could hold up better than other investments as investors shift money into them and out of stocks. They have a reputation for safety, after all.

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