Inflation’s finally cooling, and interest rates may be peaking soon. That means now may be the right time to jump back into the market – even with a potential recession on the horizon, some strategists say.
Forty-year high inflation and the most aggressive interest rate hikes by the Federal Reserve since the 1980s pummeled people’s portfolios last year. Stocks and bonds, which normally move in opposite directions, plunged simultaneously, leaving the classic diversified 60% stock/40% bond, or 60/40, portfolio in shambles and investors with nowhere to hide. Morningstar’s U.S. Moderate Target Allocation Index – designed as the benchmark for a 60/40 allocation portfolio – lost 15.3%, the biggest annual decline since 2008.
But 2023’s on a different trajectory, offering investors hope they can start rebuilding their retirement balances, some say.
“Overall, the inflation pendulum is swinging back now,” said David Russell, vice president of market intelligence at online securities and futures brokerage firm TradeStation. “The bond market sees it, and so does the stock market. That entire 60/40 strategy can go back to work, and I think we’re seeing that happen today. We’re seeing money flowing into bonds and the S&P and Nasdaq, in particular.”
What happened last year?
When inflation surged to a 40-year high, the Fed hiked last year its short-term benchmark fed funds rate by a whopping 425 basis points total, including three consecutive
