Fidelity Investments' Jurrien Timmer, director of global macro, has expressed skepticism about the return of the traditional 60/40 portfolio strategy. According to reports from Fidelity, Timmer doubts the portfolio's effectiveness due to current market conditions, particularly the persistence of positive stock-bond correlation despite recent improvements.
Timmer's analysis reveals that the five-year stock-bond correlation remains above zero at current Treasury yields, as reported by Fidelity. The correlation reading sits between 10% and 12% based on data through November 2, though shorter 13-week readings have fallen or turned negative during previous market stress periods including the 1998 LTCM crisis, dot-com bust, and 2025 tariff tantrum. However, the five-year regime has maintained positive correlation throughout these historical events.
According to Fidelity's analysis, higher yields are keeping the two asset classes moving together, which Timmer argues reduces the effectiveness of bonds as a hedge for equity declines. The 60/40 portfolio traditionally relies on bonds rising when equities fall, but current yield levels appear to be limiting this diversification benefit. Recent market data supports this view, as Treasuries rallied during October's AI stock selloff, with the 10-year yield closing below 5% on October 22, marking its first time below that level since September 22.
Rather than the traditional 60/40 allocation, Timmer has proposed an alternative strategy of 60/20/20 mix in a May 2025 Fidelity note, as reported by Fidelity. This approach includes alternatives, gold, Bitcoin, and cash in the final 20% allocation. Additionally, Ariel Investments' vice chairman Charlie Bobrinskoy argues bonds are worth buying with the 10-year yielding approximately 5%, suggesting different perspectives on current bond market valuations.
