The implications for the fixed income market are more neutral. The initial panic selling in stocks now seems to be behind us. It is, of course, still far too early to suggest that conditions are returning to normal. There is never an easy time to invest. However, with stocks down sharply and both Congress and the Federal Reserve acting decisively to counter the shock the economy has absorbed, our judgment is that conditions are now right for investors to step up and take action to rebalance portfolios to their targeted asset allocations.
Asset allocation is the process of balancing risk and return.
When the stock market was roaring in the late 1990s, it was not easy for investors to adhere to this discipline and sell stocks to buy bonds. Greed had the upper hand. Fear has the upper hand today. Selling bonds to buy stocks is likely to be even more difficult for investors to do. Viewed in a long-term context, however, we believe it is exactly the right course of action for investors to take.