The fastest bear market decline ever and accompanying disruptions in credit markets in March provided a tough test for exchange-traded funds (ETFs). With a big assist from the Federal Reserve (Fed), which announced it would purchase fixed income ETFs, and increasing optimism around an economic rebound, fixed income ETFs seem to be functioning normally again.

In a period of extreme uncertainty, with a recession almost certainly underway, big swings in stocks and economically sensitive bonds are to be expected. But the swings in high-quality bond ETFs stocked with government bonds, including short maturities, was surprising. On Mar

The economic data keeps getting worse, yet stocks have been in the midst of one of the greatest multi-week rallies ever. As the LPL Chart of the Day shows, the S&P 500 Index gained 27.2% in the 15 days after the March 23 lows, the greatest three-week rally since 1933. Take note, this rally took place amid millions of initial jobless claims, while consumer confidence, retail sales, and manufacturing crashed.

“As scary as the headlines have been, stocks are doing well, as they could be trying to sniff out potential better times ahead,” explained LPL Financial Senior Market Strategist Ryan Detrick. &ldq

Stock returns get all the headlines, and with US equities entering their first bear market since 2008, there is good reason for that. However, fixed income may account for a significant portion, or even a majority, of many investors’ portfolios, making bond returns just as important for those investors.

While we believe stock returns can offer similar upside to their history and that the current decline in prices will ultimately prove to be an opportunity, the same may not be true for fixed income.

As the LPL Chart of the Day shows, future long-term returns of bonds have been primarily determined by the startin

Investment Takeaways

We continue to follow our Road to Recovery Playbook to determine where we are in the stock market’s bottoming process. We believe the process is well underway, and we anticipate having visibility into a peak in COVID-19 cases soon—our key to stocks establishing a durable bottom. Bold fiscal and monetary stimulus will help bridge the economy to the other side, though the recent bounce has left the near-term risk-reward less attractive.

• We believe stocks may be approaching solidifying a near-term low. Our bear case has the S&P500 Index potentially hitting 2,200 before recov