Oil shocks upend the 60/40 playbook as Iran crisis shifts market correlations

Oil-driven price spikes from the Iran conflict are shifting stock–bond correlations and undermining the traditional 60/40 portfolio, with Morgan Stanley noting episodes where both equities and bonds fall as oil surges. While short-duration Treasuries still tend to move negatively with stocks, long-duration bonds’ diversification power has weakened, contributing to a bear-flattening yield curve. With inflation fears and policy uncertainty pulling in opposite directions, there may be no simple fix for diversification, prompting investors to rethink bond duration and hedging strategies in the medium term.