Do bonds still diversify stocks? Partly, and less reliably than before 2022. The stock-bond correlation turned positive in 2022, when the S&P 500 (SPX) lost 18.04% and the 10-year Treasury lost 17.83% in the same year, only the fifth such double loss since 1928 [1]. Daily data since then show the relationship hovering near zero in 2023 and 2024, turning mildly negative in 2025, and then positive again in 2026: the correlation between daily S&P 500 returns and a 10-year Treasury price proxy was +0.42 from January 1 through August 7, 2026, compared with -0.36 over 2016 to 2021 [2] [3]. Bonds still pay 4.65% on the 10-year note as of August 7, 2026, so they earn their place as an income asset, but investors should no longer assume they will rise when stocks fall [3].
What stock-bond correlation measures and why it matters
Correlation ranges from -1 to +1. A negative number means bonds tend to gain when stocks lose, which is what a 60/40 investor wants during a bear market. A positive number means the two move together, so bonds add income but little protection. From 2000 through 2021, the correlation of annual stock and bond returns in the NYU Stern table was about -0.65, and bonds acted as a hedge [1]. That regime coincided with low and stable inflation. When inflation is the main risk, both assets suffer together: stocks because higher rates lower valuations, bonds because rising yields lower prices.
Stock-bond correlation from 2022 to 2026: the numbers
The annual record from the NYU Stern table is the simplest view. Calendar years in which both the S&P 500 and the 10-year Treasury lost money: 1931, 1941, 1969, 2018 and 2022 [1]. The 2022 case was by far the largest, with stocks down 18.04% and bonds down 17.83%; a 60/40 mix lost 17.96%, barely better than stocks alone [1]. In 2023 both rose (stocks 26.06%, bonds 3.88%), in 2024 stocks rose 24.88% while bonds lost 1.64%, and in 2025 both rose again (17.78% and 7.80%) [1].
Daily data give a finer picture. The table below uses S&P 500 daily closes and 10-year constant-maturity yields from FRED. Bond returns are approximated as the daily yield change multiplied by a duration of 8 with the sign reversed, so that a falling yield counts as a bond gain [2] [3].
| Period | Correlation of daily S&P 500 returns with 10-year Treasury price proxy |
|---|---|
| 2016 to 2021 | -0.36 |
| 2022 | +0.18 |
| 2023 | +0.07 |
| 2024 | +0.06 |
| 2025 | -0.13 |
| 2026 (Jan 1 to Aug 7) | +0.42 |
Two features stand out. First, the hedge that worked from 2016 to 2021 broke in 2022 and never fully returned; the 2023 and 2024 readings are close to zero rather than negative. Second, 2026 is the most positive reading of the period. The 10-year yield rose from 4.18% at the end of 2025 to 4.65% on August 7, 2026, while the S&P 500 climbed 13.3% to 7,757.64 [3] [2]. Stocks and bond prices moved in opposite directions on the year, but day to day they tended to rise and fall together, which is what a positive correlation captures.
Why 2026 looks different from 2025
Inflation is the common driver. The Consumer Price Index rose 3.5% in the 12 months to June 2026, with energy prices up 15.7% and the core index up 2.6% [5]. The Federal Open Market Committee held its target range at 3.50% to 3.75% on July 29, 2026, but three members dissented in favor of an increase, and the statement described inflation as elevated relative to the 2% goal [4]. When the next move in policy rates is uncertain and could be upward, good news for growth is bad news for bonds and often for equity valuations at the same time, which pushes the correlation up.
What this means for a 60/40 portfolio
Bonds now do two jobs unevenly. As an income asset they are strong: a 4.65% 10-year yield compares with a 4.53% compound annual return on 10-year Treasuries over the entire 1928 to 2025 period [3] [1]. As a crisis hedge they are unreliable while inflation is above target. Investors may consider three adjustments, each with a cost.
- Shorten duration. Treasury bills and short notes lose little when yields rise, so they preserve capital in an inflation shock. The cost is that they gain little in a growth shock, when long bonds have historically rallied hardest.
- Add inflation-linked bonds. TIPS protect the real value of the bond sleeve. The cost is a lower nominal yield when inflation turns out below the market's expectation.
- Accept that stocks carry the growth risk. If bonds cannot be counted on to rise in a recession, the equity allocation itself has to be sized so that a 25% to 35% drawdown is survivable without forced selling.
The fair counterpoint is that correlation is not stable, and negative readings return when growth fears replace inflation fears. In 2025 the daily correlation fell back to -0.13, and in March 2026, when the S&P 500 dropped about 9% from its January high, the 10-year yield fell from 4.26% at the end of January to 3.97% at the end of February before rising again [2] [3]. Bonds did cushion that episode. The lesson is not that bonds have stopped working, but that they work in growth scares and fail in inflation scares, and 2026 has had more of the latter. Daily index and yield history is available on DataPorium's stock market page [6].
Bonds still pay, but since 2022 they hedge growth scares and not inflation scares, and 2026 has been an inflation year.
Key takeaways
- Stocks and 10-year Treasuries both lost money in 2022, one of only five such years since 1928; a 60/40 mix fell 17.96% [1].
- The daily stock-bond correlation was -0.36 over 2016 to 2021, near zero in 2023 and 2024, -0.13 in 2025 and +0.42 in 2026 through August 7 [2] [3].
- Inflation of 3.5% in the year to June 2026 and a Fed on hold with dissents toward tightening are the main reasons the correlation is positive [5] [4].
- At a 4.65% 10-year yield bonds remain a strong income asset, but investors may consider shorter duration and TIPS for the hedging role [3].
Frequently asked questions
Are stocks and bonds correlated right now?
Yes, mildly. From January 1 to August 7, 2026, the correlation between daily S&P 500 returns and a 10-year Treasury price proxy was +0.42, compared with -0.36 over 2016 to 2021 [2] [3].
Why did bonds fail to protect portfolios in 2022?
Inflation forced yields up sharply, which cut bond prices and equity valuations at the same time. The S&P 500 lost 18.04% and the 10-year Treasury lost 17.83% in 2022 [1].
Do bonds still belong in a portfolio in 2026?
The income case is strong, with the 10-year Treasury yielding 4.65% as of August 7, 2026, above its 4.53% long-run compound return [3] [1]. The hedging case is weaker while inflation stays above the Fed's 2% target, so investors may consider shorter maturities and TIPS.
When does the stock-bond correlation turn negative again?
Historically when the main worry shifts from inflation to growth. In 2025 the daily correlation fell to -0.13, and during the March 2026 stock decline the 10-year yield fell from 4.26% to 3.97%, cushioning balanced portfolios [2] [3].
Sources & References
- [1] NYU Stern (Damodaran): Historical Returns on Stocks, Bonds and Bills, 1928 to 2025
- [2] FRED: S&P 500 (SP500), daily close
- [3] FRED: Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity (DGS10)
- [4] Federal Reserve: FOMC statement, July 29, 2026
- [5] BLS: Consumer Price Index, June 2026
- [6] DataPorium Stock Market Data
