In the summer of 1982, Duran Duran was atop the music charts, Leonid Brezhnev was still calling the shots in the Soviet Union, and the United States was just coming out of a decade-long economic slump. Back then, the S&P 500 stood at 105.

Fast forward to 2015, and that market index has surged nearly 2,000%. A multi-decade plunge in interest rates has led to stellar returns for bond investors as well. Despite some notable bumps in the road in 2000 and 2008, the bond and stock markets have delivered remarkable long-term returns, enabling many baby boomers to build powerful retirement nest eggs.

Yet few expect the stock and bond markets to deliver such robust returns in the years ahead, and for many the question is whether the remarkably long bull market in stocks and bonds will end with a whimper or a bang.

Pete Wiley, a senior portfolio manager at Whitebox Advisors and Whitebox Mutual Funds, isn’t sure if the market action will be orderly or chaotic. “There are so many conflicting economic signals right now,” he says, adding that steady economic growth would still be necessary to help markets stay on an even keel. “But if economic problems build, we’ll see an abrupt transition in market sentiment.”

At this point, a quick history lesson about stocks and bonds is helpful. From the 1960s through the end of the 1970s, “stocks and bonds were negatively correlated,” notes Jeff Sarti, co-president of Morton Capital Management. Since the early 1980s, however, these two asset classes have often moved in lockstep. They have both benefited from falling inflation, rising corporate productivity and, more recently, a fire hose of liquidity from the Federal Reserve.
A changing Fed stance regarding liquidity may have an equally deleterious effect on both asset classes. “We’re very concerned about central bank policy. … We’ve had a free lunch thus far,” says Sarti, adding that if stocks lose ground, “bonds are unlikely to be the diversifier they once were.”

Still, a fixation on interest rates has been a losing game. “Chief investment officers have spent too much time anticipating rate moves and have lost a lot of money in terms of opportunity cost,” says Jeff Davis, chief investment officer of LMCG Investments.

As far as Davis is concerned, near-term interest rate increases aren’t the challenge. “It’s the market’s reaction to the events that we’re more concerned with.” That’s a view shared by Ben Hunt, chief risk officer with Salient Partners. “The key question to ask will be, ‘Why are rates rising?’” says Hunt.

Hunt has noted a widening spread between high-yield bonds (typically “BBB”-rated) and 10-year Treasurys. A further expansion in the interest rate spread may signal rising balance sheet risk and pressure on corporate profits.

Hunt adds that he’s keeping close tabs on Europe, not to watch the impact of a Greek exit from the euro, but to watch what larger countries such as Italy might do about their own economic strains. An Italian (or Spanish or French) exit from the euro could broadly destabilize global markets.

Concerns about central bank policy in the United States, Europe and Japan are being expressed by a range of asset managers and financial advisors. “There are some unintended consequences of the quantitative easing that the Fed, for example, wants to avoid,” says Ben Warwick, the CIO at Quantitative Equity Strategies and a member of the team that manages the Aspen Managed Futures Strategy Fund (MFBTX). “The Fed has changed the whole dynamic of risk-taking, which has greatly aided ‘risk-on’ assets in recent years.”