The correlation between U.S. stocks and bonds has reached a 30-year high, matching the levels seen in the years leading up to the bursting of the Internet bubble.

The three-month correlation between U.S. Treasury bonds and stock returns has risen to its highest level since 1997, with the 120-day correlation exceeding 50%. This level has only been seen in the few years leading up to the bursting of the internet bubble in the late 1990s, reflecting how rising inflation has once again disrupted the traditional inverse relationship between stocks and bonds. Analysts believe that if inflation remains high and encourages the market to bet on further interest rate hikes by the Federal Reserve, it will simultaneously depress bond prices and stock valuations, posing a risk to the "60/40" investment portfolio. However, Citigroup research points out that historical data shows high nominal yields in themselves do not suppress the performance of the S&P 500 index; what truly warrants caution is a rapid rise in yields. With weakening employment and inflation data, along with Federal Reserve Chairman Kevin Walshs dovish policy tone, the risk of sharply rising interest rates has diminished, and strong corporate earnings also provide a buffer for the stock market.