Chart of the week

As rates climb, 60/40 portfolio has lost steam

Expectations for a higher-for-longer rate environment have challenged equity and core fixed income markets, as this week’s chart highlights.

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January 17, 2025 | 2 minute read

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

Chart showing monthly returns on the traditional 60/40 portfolio along with the 10-year Treasury yield. The 60/40 turned in solidly positive returns for eight of the first nine months in 2024 but has since lost momentum. Since then, it generated positive returns in just one month during Q4 2024 as rising Treasury yields alarmed investors.

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.

  • Bloomberg Finance, L.P., as of Thursday, January 16, 2025.

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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