Why Investors Are Turning to Bonds During Economic Uncertainty

In 2024, the stock market has been influenced by two opposing trends: the S&P 500's strong performance driven by major tech companies and growing recession concerns fueled by fears of an AI bubble, high interest rates, and escalating national debt.

In August, these concerns intensified following a disappointing employment report from the Federal Reserve, which revealed 70,000 fewer job creations than expected for July.

This report has strengthened the recession predictions of Northwestern Mutual Wealth Management.

Earlier this year, the firm bet $2.7 billion on BlackRock’s 20+ Year Treasury Bond ETF (TLT), a move designed to benefit from a potential stock market crash.

Typically, bonds and particularly long-term treasuries perform well during economic downturns due to their stability and fixed returns, which are advantageous in low-inflation environments.

By mid-August, this investment began to show positive returns, especially after a major market drop on August 5. Brent Schutte of Northwestern Mutual explained that the ETF’s performance supports their recession outlook and validates their bond investment strategy.

He anticipates holding the ETF for at least another year and expects the full impact of the recession to become evident in the next 6 to 8 months, or possibly even sooner.