Chart of the week

Already vulnerable, the 60/40 appears deeply challenged

The 60/40 had its worst quarter since the pandemic started. Our chart looks at quarterly returns and why the coming quarters could remain volatile.

April 8, 2022 | 2 minute read

Quarterly returns on the 60/40 portfolio

Source: Bloomberg Finance, L.P., FS Investments, as of March 31, 2022. 60/40 portfolio refers to 60% stocks (S&P 500 Index) and 40% bonds (Bloomberg U.S. Aggregate Index).

  • Traditional markets have seemingly been hit from all sides recently as the Fed begins what is expected to be its most aggressive policy tightening in decades, inflation sits at multi-decade highs, fiscal support is waning, and Russia’s invasion of Ukraine shows no sign of easing.
  • Against this backdrop, the traditional 60/40 portfolio, long the backbone of many retail investor portfolios, just completed its worst quarter since the onset of the pandemic in 2020.
  • As the chart shows, it is not entirely uncommon for the 60/40 to decline. However, the degree of macro uncertainty today could cast clouds on traditional markets through the coming quarters. Prior to the pandemic, the last time the 60/40 portfolio fell was in Q4 2018, shortly after the Fed embarked on quantitative tightening, which resulted in extreme market volatility and a quick change in course by the Fed.
  • As has been well documented, core fixed income remains in a very difficult position as duration-sensitive assets have seen notable selloffs as rates spiked in March. For its part, the S&P 500 saw the sharpest ever-decline in valuations before the Fed began its hiking cycle in March but has seen a modest uptick since.
  • Despite the significant challenges stocks and bonds face in today’s environment, opportunities remain in areas of both. To find such opportunities, however, investors may be wise to adopt a more selective approach outside of traditional benchmarks as they seek alternative ways to generate returns and manage risk.

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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