Rethinking Your Investment Strategy for 2025
As the new year approaches, investors are re-evaluating their portfolios and strategies for the next 12 months. According to Matthew Bartolini, head of SPDR Americas Research at State Street Global Advisers, the traditional 60/40 portfolio may not be as effective as it once was.
A Shift in Correlation
Bartolini notes that the rolling 12-month correlation of U.S. stocks and bonds has been positive for over 600 days, the longest streak since 1992-1995. This means that bonds may not provide the same level of diversification they once did, leaving investors vulnerable to market fluctuations.
Concentration Risk on the Rise
Furthermore, concentration risk has increased, with a focus on a few large companies, sectors, and countries. This lack of diversification could lead to significant losses if these areas experience a downturn.
The Case for Real Assets
To mitigate these risks, Bartolini suggests allocating to real assets such as gold, Treasury inflation-protected securities, commodities, infrastructure, natural resources, real estate, and digital assets. These assets can help hedge against inflation, generate yield, or act as a diversifier to broad equities and fixed income.
Private Assets: A Cautionary Note
While private assets may offer attractive returns, Bartolini warns about their illiquidity and the potential risks associated with them.
Market Performance
Despite the risks, the markets continue to perform well, with the S&P 500 and Nasdaq Composite both experiencing gains over the past year. Gold and oil have also seen significant increases, while Treasury yields have fluctuated.
Economic Calendar
This week’s economic calendar is filled with key events, including the ADP private-sector jobs report, the ISM services report, and a moderated discussion with Fed Chair Jerome Powell.
Company Earnings
Several companies have reported earnings, including Salesforce.com, Marvell Technology, Okta, and General Motors. While some have beaten expectations, others have fallen short.
Global Events
Global events are also having an impact on the markets, with France holding a no-confidence vote and South Korea experiencing turmoil following the declaration of martial law.
Investor Insights
In a recent chart, Variant Perception highlighted the VIX outperformance on days when the S&P 500 went down, suggesting a lack of desire to hedge in 2024. This could be a sign of complacency among investors.
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