An extremely rare dual pullback in stocks and bonds

A rare dual pullback in stocks and bonds has investors in a tizzy (by SentimenTrader)

It's been a heckuva year for investors, and not in a good way. The overwhelming majority of investment wealth in the U.S. is tied to stocks and bonds, and both have been broadly hit. Neither asset class has provided ballast to the other.

We saw earlier this week that high-yield bonds have suffered heavy selling over the past month, on par with some of the worst declines in 15 years. It's not just junk bonds that investors are selling, though. Investment-grade bonds, municipals, Treasuries - all have suffered.

This sell-everything mentality has created an unusual situation where both stocks and bonds are losing ground simultaneously.

It's extremely rare to see both stocks and bonds in a pullback at the same time, defined as a 5% decline from a 52-week high. Starting late last week, the total return in the S&P 500 and Bloomberg U.S. Aggregate Bond Index were both more than 5% off their highs. 

These dual pullbacks were a good sign that whatever macro concerns were driving the selling was mostly overdone. The S&P did suffer some losses in the months ahead, especially in 2008 as the final bout of panic hit markets. 

It's been mostly a tailwind for the bond market over the past 40+ years, so it's not a big surprise that the total return on the Bloomberg U.S. Bond Aggregate was mouth-watering.