The 60/40 Portfolio and May Market Update

At the beginning of the year, both equity and bond markets were experiencing a bearish trend, with the S&P 500 and US Aggregate Bond index each declining by roughly 20 plus percent from their prior highs.

These losses were largely attributed to persistent inflation, the increase in short-term interest rates, and global tensions. Feedback from many of our clients suggests that this downturn has been more painful than previous market declines because traditional diversification strategies did not offer the expected protection. Typically, when stocks decline, bonds serve as a stabilizing force in portfolios due to their perceived safety. However, as shown below, 2022 proved to be the worst year for a 60/40 portfolio (60% equities and 40% bonds) since the 1930s.

Chart from Ben Carlson’s Wealth of Common Sense

Fast forward to today, there is positive news regarding both equities and bonds. Equities have experienced a reversal and are currently up by a little over 10% year-to-date, with the technology sector leading the way with a remarkable increase of over 30%. While bonds haven't rebounded as strongly as equities, the higher coupon payments resulting from increased interest rates are now bringing back the benefits of owning bonds for investors.

At this point, we find ourselves in a holding pattern. Earnings have shown positive results, and it seems that the banking crisis has been averted and the debt ceiling avoided, at least for the time being. The Federal Reserve will continue to closely monitor inflation, and it appears that the debt ceiling issue will be resolved. Our outlook remains the same as it has since last October- we are overweight domestic equities, short-term taxable bonds as well as longer-term municipal bonds.

As always, we are available to review your current portfolio or assist you with any financial planning inquiries you may have. Feel free to reach out.

Thanks

Frank

Retirement Capital Advisors 

800 Battery Ave SE

The Battery, Suite 100

Atlanta, GA 30339

Office- 412-722-3795 

[email protected]

Securities and Advisory Services offered through Commonwealth Financial Network®, member FINRA/ SIPC, a Registered Investment Adviser. Fixed insurance products and services are separate from and not offered through Commonwealth Financial Network