Since March, the global "stock, bond, and gold" markets have experienced a triple decline—this is the worst situation, and investors have nowhere to hide.

The energy shock triggered by the Iran war is pushing global financial markets into a rare synchronized collapse across multiple assets. Stocks, bonds, and gold fell simultaneously in March, rendering traditional defensive tools nearly ineffective, and investors are facing the most severe risk aversion dilemma in years.

According to the Financial Times, the MSCI World Index, which tracks global developed and emerging market stocks, has dropped about 9% in March. In the U.S. stock market, the S&P 500 index fell for the fifth consecutive week, marking the longest losing streak since 2022, while the Nasdaq 100 index entered correction territory for the week.

At the same time, the composite index of global government and corporate bonds has declined by more than 3%, and the traditional “60-40” stock-bond portfolio is experiencing its worst monthly performance since September 2022. Gold has also plummeted 15% this month, forcing investors under liquidity pressure to liquidate previously lucrative long positions.

The core fear in the market is the risk of stagflation. Following the outbreak of the Middle East war, the sharp rise in energy prices has raised concerns that the global economy could fall into a stagflation scenario characterized by slowing growth and rising inflation, prompting central banks that had planned to cut interest rates to reconsider the possibility of raising them, thus simultaneously hitting the three main asset classes: stocks, bonds, and gold.

“Nothing works”: The three asset classes are under pressure simultaneously

The rarity of this sell-off lies in the simultaneous decline of stocks, bonds, and gold, nearly rendering multi-asset diversification strategies ineffective.

In the stock market, the MSCI World Index tracking global developed and emerging market stocks has dropped about 9% in March, and in the U.S. stock market, the S&P 500 index fell for the fifth consecutive week, marking the longest losing streak since 2022, while the Nasdaq 100 index entered correction territory for the week.

In the bond market, the yield on the 10-year U.S. Treasury bond briefly rose to 4.48%, the highest level since July, while the 30-year yield also approached 5%; European bond yields similarly reached highs since the outbreak of the conflict. The bond sell-off is not merely reflecting rising inflation expectations but also reflects a repricing of market expectations regarding the policy paths of major global central banks.

The collapse of gold has surprised the market even more. Gold had seen a strong upward trend over the past two years, peaking in January this year, but has now plummeted 15% this month. Sophie Huynh, multi-asset portfolio manager at BNP Paribas Asset Management, pointed out that due to “nowhere to hide,” investors are “liquidating high-yield assets like gold” to meet liquidity needs.

Raphaël Thuin, head of capital markets strategy at Tikehau Capital, candidly stated, “What works for investors? Nothing. This is really one of the worst situations you can think of. Managing portfolios has been extremely difficult over the past few weeks.”

Trump’s statement failed to stop the bleeding, and cracks in market trust appeared

Trump extended the deadline for launching attacks on Iranian energy infrastructure, but this statement failed to soothe investor sentiment, with the S&P 500 index dropping another 1.7% on Friday, continuing the downward trend from the previous trading day (the worst day since the outbreak of the conflict), with the two-day total decline being the largest since last year’s tariff crisis.

Jordan Rochester, head of fixed income strategy at Mizuho, stated that Trump’s deadline extension “does not resolve the accumulated issue of the blockade of the Strait of Hormuz,” and that “the market may begin to pay less attention to the White House’s verbal pressure and focus more on the reality of energy shortages on the ground.”

U.S. Secretary of State Marco Rubio predicted that the war would end “in weeks, not months,” but the market reacted little to this. Larry Weiss, head of stock trading at Instinet, remarked:

“News like this would have driven the market up a few weeks ago, but today there is no reaction. No one knows what will happen next; the market has an inherent distrust of statements from both the U.S. government and Iran.”

Steve Chiavarone, deputy chief investment officer at Federated Hermes, also noted, “Trump had previously stabilized the oil and bond markets with his words, and the market was waiting for the conflict to end, but today the market no longer responds to that.”

Defensive tools have failed, and the logic of diversification faces challenges

This crisis is not just a market correction but a profound questioning of the multi-asset diversification investment framework that has existed for decades.

Michael Purves, founder of Tallbacken Capital Advisors, explained in a report to clients: An investor who had perfect foresight on February 27 (the day before the outbreak of the conflict) and had purchased bonds, gold, VIX call options, and S&P 500 protective options is now at a loss on almost all positions.

Research by Bloomberg Intelligence ETF analyst Athanasios Psarofagis shows that this year, on trading days when stocks fell, the probability of bonds and gold rising simultaneously was only about 43%, while Bitcoin’s probability was even lower at around 25%, both significantly below the over 60% level of a decade ago.

Christian Mueller-Glissmann, head of asset allocation strategy at Goldman Sachs, pointed out that in the early stages of inflation shocks, the “only tools that work” are derivatives betting on rising inflation or commodity prices. His team shifted to an overweight cash position one week after the outbreak of the conflict.

The latest Bank of America fund manager survey indicates that the speed at which investors are flooding into cash in March is the fastest since the COVID-19 pandemic.

The old script has failed, and the market awaits a turning point

Despite the current dire situation, some market participants believe the sustainability of this trend depends on the direction of the conflict.

Michael Arone, chief investment strategist at State Street Global Advisors, stated that the failure of the fixed income diversification function may be temporary. His team has recently reduced equity exposure and increased bond holdings, expecting that once tensions between the U.S. and Iran begin to ease, the waning inflation risk will drive the bond market back to a rate-cutting logic.

However, Mina Krishnan of Schroders warned that the market environment has undergone a deeper structural shift: “The world has shifted from demand-side shocks to supply-side shocks, and the old investment script needs to be revised.” Her team had already purchased protection through credit default swaps before the outbreak of the Middle East conflict and continues to hold it.

Raphaël Thuin of Tikehau Capital pointed out the core contradiction: “The traditional concept of safe-haven assets is increasingly being challenged. The dynamic evolution of the global economy and financial markets has made this narrative complex.”

Risk Warning and Disclaimer

        Markets are risky, and investments should be made with caution. This article does not constitute personal investment advice and does not take into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at one's own risk.