Historical Agg returns during years when S&P 500 returns were negative
Source: Bloomberg Finance, L.P., as of October 31, 2022
- All eyes were squarely on the Fed this week as policymakers raised rates by 75 bps, as expected. Stocks staged a very short-lived rally before Fed Chair Powell again doused cold water on investors’ hopes of a potential pivot from the Fed’s hawkish policy, noting in his press conference that such thinking is premature, as rates may need to remain higher for longer.
- Wednesday’s activity was emblematic of the difficulties stock and bond markets have experienced throughout this year, as they have been roiled at various points by rising interest rates and fears of slowing economic growth.
- The combination has had a historically negative impact on the 60/40 portfolio. As the chart shows, in each of the past eight years when stocks were down, core fixed income (the “40”) provided a meaningful ballast to the portfolio, with returns ranging from flat in 2018 to as high as 11.6% in 2000.1
- Amid the difficult macro combination this year, the 60/40 is down -16.9% year to date, marking the worst 10-month return in more than 50 years, as the Agg has fallen nearly as much as stocks.1
- In an environment in which many difficult macro questions have yet to be answered, including when the Fed will stop hiking and how high the terminal rate will be, the forward-looking environment continues to appear very challenging across traditional stock and bond markets.