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A return to 60/40 balance?


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Listen and subscribe

This strategy fell out of favor, but it may be poised for a return.

Podcast transcript

For years, the 60/40 portfolio strategy provided attractive returns. And then 2022 happened. Could we see a return to 60/40 in 2024? Coming up, we layout the case.


From Thrivent Asset Management, welcome to Advisor’s Market360™, a podcast for you, the driven financial advisor.

Longtime listeners of this podcast may remember our episode on the 60/40 portfolio from April of last year wherein we described how this long-standing strategy had surprisingly poor returns in 2022.

This caused some to write off this strategy as a thing of the past. But have market conditions shifted to once again make 60/40 a viable option?

Before we go any further, let’s do a quick refresher. The 60/40 strategy assumes that there is a correlation between the relative performance of the broader stock and bond markets, and that this correlation is negative. In other words, when stocks decline, bonds are expected to rise in value as rates fall, or, at worst, hold their value, acting as a strong portfolio buffer. The strategy also assumes that this relationship works in reverse during strong stock market rallies, with bond prices declining or, at best, holding their value.

To help us breakdown what is going on with the 60/40 portfolio strategy, we turned to three of Thrivent’s experts: Chief Investment Strategist Steve Lowe, Head of Fixed Income Kent White, and Head of Mixed Asset and Market Strategies David Spangler.

(Music transition)

As we often do, we first have to look at the actions of the U.S. Federal Reserve, or Fed. We have been expecting the Fed to hold rates steady through the next meeting, which is in March. In fact, at the February meeting, Chairman Jerome Powell indicated that the Fed expects to hold rates steady in March absent a large change in the data.

Our expectation has been that the Fed will start cutting rates in May or possibly June. We expect Treasury rates will fall through the year, but the path will be choppy. They’ve already fallen materially from their peak. Credit, such as investment-grade corporates and high-yield, is richly valued.

So how does this manifest in a 60/40 portfolio strategy? Steve Lowe explains:

Lowe: “It's been a tough couple of years, particularly for the Treasury market. [In regard to] the classic 60/40, fixed income was not that diversifying. And there are a lot of people declaring 60/40 dead. The correlations of returns slipped to positive, meaning that, as rates go up, they're also a trigger for not only lower fixed income returns, but also lower equity returns.

“But rates are well off the peak. So, I think there's a diversifying role for fixed going forward. So fixed income, I think, is attractive again as a buffer and offers diversification. And yields also are very attractive.”

Looking at the 60/40 spread, we wanted to hear about specific fixed interest vehicles where Lowe sees potential.

First, investment-grade corporates. Despite his belief that this bond class is overvalued, Lowe believes that their fundamentals are still solid, and the yields remain attractive despite being past peak.

Similarly, high-yield bonds appear to be overvalued and could suffer in a slowdown due to the potential increase in defaults. However, Lowe believes that the yields currently offered are attractive.

Emerging markets look attractive on multiple levels. In addition to the falling rates in many emerging market countries, U.S. Fed rate cuts will give a boost to these currently attractive yields. A weakening U.S. dollar will help emerging market equity investments, as well. Kent White had more to add:

White: “Going into 2024, we expect EM—emerging market economies—to kind of lead global growth. We feel it’s not a bad place to be. It’s also a mix of higher quality and higher yielding sovereign debt. It’s an area we do find attractive—we’re constructive on it.”

(Music transition)

Now let’s turn to the equity side of the 60/40 strategy. Lowe and his team are moderately optimistic on equities with a bias toward growth and quality, with a focus on domestic equities versus international.

What should be noted is that domestic equity breadth has been narrow, meaning the mega cap tech names have been leading the market. At Thrivent Asset Management, we expect markets to be choppy after a large run up late last year but end the year with solid returns.

Equity markets historically have fared well over a six-month and 12-month horizon after a new high has been set following a bear market. The economy remains solid, and a soft landing is our base case. We believe Fed rate cuts and slowing inflation are positive for markets.

For additional context on where the equity markets are likely heading, we turned to David Spangler.

Spangler: “The consumer is still well financed, so to speak. So, the markets, having performed well, provides a wealth effect, which has been beneficial. Housing prices are still well up from where they were pre-pandemic, and that has supported consumer spending and the overall economy as well.

“If we do get rate cuts, that will be an added benefit. But also, too, there's a lot of liquidity in the markets, and that's been a support to the markets. [There’s] a lot of cash on the sidelines, cash on the balance sheets of corporations, but also, too, with consumers.”

Spangler highlighted just how much money is idling right now.

Lowe: “There's about 6 trillion almost in money markets right now.”

Spangler: “And I think that there's a little bit of what we might call a FOMO—fear of missing out. And so, that cash can come back into the market and support it as well. So, all these things, I think, come together to support a relatively constructive 2024.”

As a quick aside, we asked Lowe to provide some recommendations for the use of cash and money markets in client portfolios. He responded that cash still provides a decent yield but has reinvestment risk. He anticipates cash rates will reset quickly as the Fed cuts rates. The intermediate part of the Treasury yield curve looks more attractive to lock in yield and benefit from lower rates. High quality, high yield looks good for people who want yield and can take some volatility.

(Music transition)

Based on where the equity markets and fixed income markets are heading, it seems that the 60/40 portfolio strategy may once again become attractive. But as with any strategy, there are risks for investors.

The key risk is if inflation remains sticky and the Fed has to hike interest rates again. In that scenario, returns for both fixed income and equity would fare poorly with positive return correlation, in other words, both negative. If this happens, the diversification benefit of fixed income is lost.

(Music up and under)

Once again, we would like to thank Steve Lowe, Kent White and David Spangler for their insights. More episodes of Advisor’s Market360™ are available wherever you get your podcasts. Email us at with your feedback, questions and topic suggestions for future episodes. And as always, you can learn more about us at and find other insights of interest to you, the driven financial advisor. Bye for now.

(Disclaimers under music)

All information and representations herein are as of February 1, 2024, unless otherwise noted.

Past performance is not necessarily indicative of future results.

Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.

Thrivent Asset Management, a division of Thrivent, offers financial professionals a variety of investment products to help meet their clients’ needs. Thrivent Distributors, LLC is a member of FINRA and a subsidiary of Thrivent, the marketing name for Thrivent Financial for Lutherans.

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