A central bank would cut interest rates when economic times

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The relationship also worked in reverse. As the benefits of lower interest rates stabilised the economy and the outlook for corporate earnings improved, central banks could then normalise their policy rates. For equities, the prospect of stronger corporate earnings overwhelmed the fact that you were discounting them at a higher rate of interest.

In short, the inverse correlation between stocks and government bonds created a perfect symbiotic relationship, helping those investors with a balanced portfolio to sleep easy through good times and bad.

But with the advent of QE, the narrative has shifted. And the scale of that shift has become increasingly apparent during the pandemic, as illustrated by the Federal Reserve’s commitments in March and April to buy assets as far down the risk spectrum as high-yield credit.