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Stocks and Bonds Rose Together. Now Both Are Faltering. What to Do?

The S&P 500 has slid 13% so far this year, and the Bloomberg U.S. Aggregate bond index has lost 10%.
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From 2009 until early this year, stocks and bonds largely rose together. But now they’re falling together.

The S&P 500 has slid 13% so far this year, and the Bloomberg U.S. Aggregate bond index has lost 10%.

The indexes are on pace for their biggest simultaneous fall since 1976, when Dow Jones Market Data started following the numbers, The Wall Street Journal reports

The only other year when the two indices both fell was 1994, and that was only 1.5% for the S&P 500 and 2.9% for the Agg index.

Soaring inflation and the Federal Reserve’s program to raise interest rates are pushing down both stocks and bonds.

Consumer prices climbed 8.5% in the 12 months through March, a 40-year high. And the Fed is expected to continue lifting interest rates through year-end and into next year.

Bonds are supposed to act as a buffer to protect investors’ portfolios against falling stock prices, but, obviously, that's not happening now. 

So what’s an investor to do?

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Safe Individual Bonds, Consumer-Staple Stocks

Bonds are starting to offer more attractive yields amid the Fed’s action on interest rates. So investors might consider individual bonds that can protect them from falling stocks.

You can buy safe bonds and hold them until maturity, with the very likely return of all your principal. You don’t have to go far out on the yield curve to garner interest payments that are appealing, far higher than they were just a few months ago. The sooner your bond matures, the less risk you take.

The three-year Treasury note recently yielded 2.99%, up from 1.62% just two months ago. On the corporate side, a three-year double-A rated Apple AAPL bond recently yielded 3.18%.

Another possibility is Series I Treasury Savings Bonds. As Treasury bonds, they’re very safe, and their yield varies with inflation. That’s quite an advantage now, given soaring prices. The bonds yield 9.62% through October.

As for stocks, consumer staples and commodity-related shares have escaped much of the carnage this year. 

Consumer staples generally do well in times of economic weakness, and we may soon be in one. Commodity-related stocks are benefiting from inflation, which has pushed up the S&P GSCI commodity index 36% so far this year.

Among consumer staples, Coca-Cola  (KO) - Get Coca-Cola Company Report has gained 7% during that period, warehouse-club retailer Costco  (COST) - Get Costco Wholesale Corporation Report is off 7% this year and snacks giant Mondelez  (MDLZ) - Get Mondelez International, Inc. Class A Report has ticked down 2.4%.

As for commodity stocks, Chevron  (CVX) - Get Chevron Corporation Report has soared 38% so far this year.

The author of this story owns Apple bonds and Coca-Cola stock.