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Treasury bears may be in hibernation and the February equity rout behind them, but investors had better get used to lackluster returns.

So say strategists from Goldman Sachs Group Inc. who warn higher volatility will sap equity gains while bonds lose their hedging potency.

“This moderation in risk-adjusted returns has begun to play out quickly, in particular due to the low-vol regime fading and equity/bond return correlations becoming positive,” Goldman strategists led by Ian Wright wrote in a note on Friday.

From rising rates to slowing growth, risks are multiplying. That leaves those who rely on a traditional stock-bond portfolio split in developed markets most exposed as asset classes that had once once balanced each other out now fall together.

One proxy for the industry’s prospects, the DFA Global Allocation 60/40 portfolio, illustrates the shift. Last year, benign stock-bond correlations and an unstoppable bull market pushed 30-day volatility to a record low of 2.5 percent. Now, realized price swings stand at an elevated 11.6 percent — compared with a 9 percent post-crisis average — crimping returns adjusted for risk.

Goldman recommends equities over credit “given the growth impulse has already led to a large tightening in credit spreads.” But even stocks should be taken with caution because earnings may succumb to growth disappointments.

“Just as we would recommend staying invested in risk and ‘buying dips’ in equity while growth remains strong, we would recommend buying smaller correction hedges at times when vol resets lower, in case rate or especially growth concerns rise,” Goldman strategists wrote.

Regardless of the market direction, volatility-adjusted returns in 2018 now look modest relative to expectations earlier in the year.

Goldman’s warning resonates with a growing consensus on Wall Street that sees clouds over the growth outlook.

The U.S. economy is in the “twilight of the mid cycle” and investors should brace for the possibility it’s edging toward a recession, JPMorgan Chase & Co. warned last week, even as its strategists remained largely bullish on risk.

HSBC Holdings Inc. also sounded a note of caution. “Markets have entered a transition phase which reduces risk-adjusted returns, but are not in a new regime yet,” strategists led by Pierre Blanchet wrote earlier this month.

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