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Matthias Knab, Opalesque:

Russ Koesterich, Head of Asset Allocation for BlackRock's Global Allocation Fund, writes on Harvest Exchange:

History since the turn of the millennium has been marked by several themes: an ever growing dependency on smart phones, the recent trend towards populism and the economic rise of China. Negative stock-bond correlations rarely make the list.

Admittedly not quite rising to the significance of the smart phone, but this is a big deal from the narrow perspective of the asset allocator. Since 2000 stocks and bonds have tended to move in opposite directions. This propensity towards negative correlation has made bonds a reliable hedge against equity risk. Whether this trend continues is key for how investors build portfolios.

It is important to recognize that stock-bond correlations have not, as a matter of course, always been negative. In fact, over the long term stock-bond correlations average roughly zero. That said, the average masks two very distinct periods. See the chart below.

{View chart on Harvest}

From the 1980s through the bursting of the tech bubble, correlations were reliably positive, averaging 0.50. This was a period when traders anxiously awaited every weekly money supply print and had to divine Federal Reserve (Fed) policy without explicit communications.

The second pe......................

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