Chart of the week

The 60/40 starts 2022 in the red

This week’s chart looks at the monthly returns on the 60/40 portfolio, which declined in January and faces a murky outlook in 2022.

February 4, 2022 | 2 minute read

Monthly returns on the 60/40 portfolio

Source: Bloomberg Finance, L.P., as of January 31, 2022. 60/40 portfolio refers to 60% S&P 500 and 40% Bloomberg U.S. Aggregate Index.

  • The balanced 60/40 portfolio, long the backbone of many retail investors’ portfolios, turned in its worst monthly performance in January since the COVID-induced market collapse in February and March 2020, as both stock (-5.17%) and core fixed income (-2.15%) fell.1
  • As the chart shows, it’s not entirely uncommon for the 60/40 portfolio to experience a monthly decline. Yet the macro outlook that has taken shape in early 2022 could be a potential warning sign for investors across traditional markets.
  • Core fixed income’s difficulties have been well-documented as it continues to face significant downside risks when rates rise and little upside if rates fall. However, the environment for stocks, the backbone of the 60/40, has suddenly turned more challenging following a banner year in which the S&P 500 rose 28%.
  • As the calendar year turned, equity investors shifted their attention toward several notable challenges, including high and rising inflation and the prospect of four to five Fed rate hikes this year.
  • Despite the significant challenges, opportunities remain in pockets of both credit and equity markets. To find it, however, investors may be wise to adopt a more active approach to navigate today’s challenges and seek alternative ways to generate returns and manage risk. 

  • As of January 31, 2022. Stock returns based on the S&P 500 Index, core fixed income based on the Bloomberg U.S. Aggregate Bond Index.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

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