Tuesday’s stock setup is looking wobbly, a day ahead of mega consumer price data that could firm up or loosen growing consensus for another Fed rate hike next month.
An additional interest-rate rise might serve to entice more investors into money-market funds, investments that might have otherwise have gone into bonds or stocks.
That brings us to our call of the day, from LPL Financial’s asset allocation strategist Barry Gilbert, who says it’s time to reconsider a beaten-down, but once-popular investment strategy.
“There deservedly was a lot of hand-wringing about the death of the 60/40 portfolio in 2022, a portfolio of 60% stocks and 40% bonds,” Gilbert wrote in a note. “What was most surprising for the 60/40 in 2022, of course, was how spectacularly bonds failed to play their traditional role as a portfolio diversifier in a down market for equities.”
While investors are used to choppy paths to longer-term stock gains, he said they were stunned by bond volatility, of which 2022 delivered plenty. But things are starting to look brighter for the 60/40, he said.
“While the fourth quarter of 2022 and the first quarter of 2023 weren’t spectacular for the 60/40, using the total return for the S&P 500 index and the Bloomberg U.S. Aggregate Bond Index as our proxy for stocks and bonds, the 60/40 has been on solid footing the last two quarters, as seen in the chart below,” said Gilbert.
Looking ahead, he says investors can find even more reasons to reconsider the strategy.
“Looking at bonds from a tactical perspective, with higher starting yields, a Federal Reserve likely near the end of its rate hiking campaign, and inflation coming back down, not only do return prospects look brighter for bonds, we believe they have become more likely to return to their historical role of a portfolio diversifier in the event of an economic downturn,” said Gilbert.
On the equity side, he admits there is more uncertainty given Fed policy tends to act with a lag, but is also not anticipating a steeper downturn and doesn’t think markets will overreact to a modest one.
On a strategic time frame, LPL’s long-term stock and bond forecasts, based on the S&P 500 and the Bloomberg Aggregate as proxies, indicate improvement from last year to 2023. Stock valuations are still a bit elevated based on history, but did improve in the pullback, while the jump in bond returns “is even more meaningful as the downside from higher yields turns into upside looking forward,” he said.
Gilbert says wary investors, understandably, may still not be ready to fully embrace the 60/40, especially given caution on fixed-income markets in particular.
“There were also some effective hedges against losses in 2022 that investors can sometimes forget when the 60/40 is on a roll, especially in alternative investments. We do believe that there are ways in which a portfolio can be better diversified beyond the traditional 60/40, but we think the 60/40 remains a sound foundation for a diversified portfolio, both tactically and strategically, something that is easy to forget after the challenges of 2022,” he said.
Read: ‘Sell the last hike’ was the best stock strategy in the inflationary 70s/80s, says BofA
The markets
Stocks
SPX,
+0.30%
DJIA,
+0.54%
COMP,
-0.11%
opened mixed, as bond yields
TMUBMUSD10Y,
3.430%
TMUBMUSD02Y,
4.024%
hold steady. Crude
CL.1,
+2.13%
BRN00,
-0.08%
is higher, alongside gold
GC00,
+0.86%
as the dollar
DXY,
-0.42%
falls across the board. Bitcoin
BTCUSD,
+4.24%
is grabbing some limelight as it cruised above $30,000 for the first time in 10 months.
For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.
The buzz
CarMax stock
KMX,
+10.36%
is surging after a big profit beat, despite disappointing revenue from the used car seller.
M&A action: Newmont
NEM,
-1.77%
shares are down after the gold miner boosted its nonbinding indicative offer for rival Newcrest Mining
NCM,
+5.16%.
In Canada’s struggling pot sector, Tilray
TLRY,
-8.85%
struck a deal for Hexo
HEXO,
-26.23%
and analysts are asking ‘Why now?’
Getty Images shares
GETY,
-3.85%
jumped 5% after an activist investor recommended a sale of the visual content creator.
Moderna
MRNA,
-2.34%
is developing a vaccine for lime disease, its first for a bacterial disease.
Chinese tech giant Alibaba
BABA,
-1.23%
is ready to roll out Tongyi Qianwen, its ChatGPT-like model of artificial intelligence.
An indicator on confidence among U.S. small businesses declined amid banking turmoil in March. Elsewhere, data showed U.S. bankruptcies reached the highest level in three years in March. And Chicago Fed President Austan Goolsbee, Philadelphia Fed President Patrick Harker and Minneapolis Fed President Neel Kashkari are all due to speak on Tuesday.
China consumer prices dropped to the lowest level in more than a year in March.
Read: Why March’s CPI report could upset the stock market, seal the deal on the next rate hike
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The chart
The below chart from Alphatrends‘ founder Brian Shannon, and flagged by The Daily Chart Report, offers a few ideas on what’s next for bitcoin, after big moves in the past 24 hours:
“Brian points out that it’s currently at a potential inflection point as it tests the AVWAP from the peak (black line),” says Daily Chart Report’s Patrick Dunuwila. VWAP — volume weighted average price — is a technical indicator that tracks the average price throughout the trading day. AVWAP — Anchored VWAP — lets the trader select the VWAP starting point.
“This AVWAP acted as resistance last April, but the current attempt looks more constructive as price has been consolidating just below it for the past four weeks. This consolidation below resistance has given buyers more time to absorb the overhead supply at these levels. Either way, this is a major test for Bitcoin,” said Dunuwila.
The tickers
These were the top searched tickers on MarketWatch as of 6 a.m.:
| Ticker | Security name |
|
TSLA, +1.77% |
Tesla |
|
BUD, +0.35% |
Anheuser-Busch InBev |
|
AMC, +5.44% |
AMC Entertainment |
|
GME, +2.01% |
GameStop |
|
BBBY, +5.78% |
Bed Bath & Beyond |
|
MULN, +1.68% |
Mullen Automotive |
|
TRKA, -8.27% |
Troika Media |
|
AAPL, -0.53% |
Apple |
|
NIO, +5.80% |
NIO |
|
NVDA, -0.98% |
Nvidia |
Random reads
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