According to CNBC, as the stock market nears historic highs and the bond market continues to sell off, multiple wealth advisors suggest that investors consider rebalancing to their target risk levels. This recommendation is based on the extreme divergence currently seen across the stock and bond markets: equity valuations are soaring, while falling bond prices are pushing yields higher.

The core logic of rebalancing is that when one asset class performs too strongly, the risk exposure investors actually hold can drift away from the original target—for example, the stock allocation can rise passively. At that point, selling some stocks and buying bonds can lock in gains and restore risk balance. With bond yields rising, new investments in bonds can earn higher coupon payments, adding extra appeal to rebalancing right now.

However, rebalancing does not come without cost. Selling too early during an uptrend in the stock market may mean missing out on subsequent gains, while if bond prices continue to fall, the bonds that were bought will also face paper losses. Therefore, investors need to weigh discipline against flexibility.

Next, investors should pay attention to the Federal Reserve’s interest-rate path and inflation data. If inflation continues to cool, the Fed may slow its rate hikes, easing the pressure from bond selloffs and making the timing for rebalancing more favorable; conversely, if inflation rebounds, bond yields may rise further, increasing the urgency of rebalancing. In addition, investors should watch whether earnings growth in the stock market can support current valuations. If company earnings reports come in below expectations, the risk of a stock-market pullback will rise, and the defensive value of rebalancing will become more prominent.

Risk warning: This article is for informational interpretation only and does not constitute investment advice.