Will Inflation Make a Comeback? AQR Updates Inflation Sensitivity and Inflation Hedging Analysis

AQR has updated its previous analysis of inflation sensitivity and inflation hedging, based on over 50 years of market data. While global inflation has fallen rapidly from its 2022 peak, inflation uncertainty persists in major markets, stock-bond correlations are at multi-decade highs, and traditional stock-bond portfolios are vulnerable to simultaneous losses during inflation shocks. Commodities and trend-following strategies perform strongly during inflation upcycles and can serve as inflation diversification tools, with implementation methods significantly affecting long-term returns and macro diversification outcomes.