Economics Question: Stocks and bonds

Factual Questions
1

It is generally known that in a normally functioning economy with business cycles that bond prices go up with stock prices go down. That’s because bonds with their fixed rates then offer higher rates of return compared to stocks and are thus more desirable.

But (you knew there was a but) what about an economy not in equilibrium, say due to an external economic shortage from oil. When I think about it, I get two answers depending on how I think. Part of my thinks the original answer should still apply. Part of me thinks that an externally applied shortage should present such a drag on the economy that the risk in bond prices should drive their prices down, and the whole economy would go down the proverbial tubes. Which happens?

What happened in 1973?

2

No, bonds tend to offer a lower rate of return than stocks in exchange for less volatility. Stocks offer potentially a much higher return however they are more subject to market fluctuations.

In a bad economy, people tend to switch to the stability of bonds while in a good economy, people tend to prefer the higher returns of stocks.

In the scenario you describe, I imagine that people would invest in bonds.