Growing concerns about the impact of proposed tariff policies on the U.S. economy have pushed market volatility higher and led to significant declines in equity prices. At the same time, bonds have rallied, reaffirming the benefit of high-quality fixed income as a diversifier. Year to date the Bloomberg Aggregate Bond Index has delivered 3.2%, while the S&P 500 has returned -5.3%.

In addition, higher starting yields continue to provide meaningful income and can offer a significant buffer against rate volatility. This environment is a stark contrast to 2022, when low yields, rising inflation and an aggressive Fed response resulted in declines for both equities and bonds.

With continued policy uncertainty, the range of potential economic outcomes is arguably wider than predicted at the beginning of the year. In this environment, it’s important for investors to review their portfolios to ensure they are diversified to meet long-term goals, and include fixed income as a core component of their allocation.