A clear signal
(2024-Jan-10)
Historically, it seems entirely clear that the starts and ends of US-Federal Reserve rate tightening cycles indicate a signal to shift more from stocks in bonds or vice versa. During 2023 many lamented the dismal performance of the 60-40 portfolio, but as can be seen below, it was NO surprise and only a repeat of a very clear pattern.
As such, we must expect better (total) performance from a portfolio heavy in bonds (opposite of 2023) and light on stocks. The only question is: will the J-Po’s “pause” will result in a drop like in the past, or a merely an inflection point. We’ve recently made arguments on this site that larger long-term forces will not allow return to the zero rate environs of the last two decades. But even if there will be an inflection, (i.e. at the very least a small drop in the FF-rate) is sure to happen in an election-year if merely due to pressure from the regime in the White-house. Load up on bonds as you did TP in 2020, and revisit this curve in January 2025.