60/40 portfolio monthly performance, 10-year Treasury yield

Source: Bloomberg Finance, L.P., as of December 31, 2024.
- Investors breathed a sigh of relief this week as December’s benign inflation reading raised hopes that the Fed has room to continue cutting rates this year.
- Despite the relief rally, expectations for a higher-for-longer rate environment, driven by solid economic data and stubborn inflation readings, have taken their toll on markets over the past several months.
- The traditional 60/40 portfolio turned in solidly positive returns for eight of the first nine months in 2024 but has since lost momentum. As the chart shows, the 60/40 generated positive returns in just one month during Q4 2024 as rising Treasury yields alarmed investors. Month to date, it has also been whipsawed by rate volatility.
- The 60/40 portfolio’s recent struggles highlight the potential challenges markets face in 2025, ranging from ongoing rate volatility amid uncertain monetary and fiscal policies to a historically expensive equity market that is coming off two consecutive years of over 25% gains. The 60/40 has been similarly challenged over the past three years, returning just 5.3%.1
- Given today’s macro uncertainties, the case for looking outside the traditional 60/40 for investments that offer alternative sources of diversification, income and growth potential appears particularly compelling.