Timmer Questions 60/40 Portfolio Revival Amid Weakening Stock-Bond Link
Fidelity's Jurrien Timmer questions the 60/40 portfolio comeback as higher Treasury yields sustain a positive stock-bond correlation.
European stocks opened higher on Wednesday as oil prices eased and bond yields retreated, providing a respite ahead of the Fed's rate decision.
European equities began Wednesday's session on a positive note, recovering somewhat from a selloff that had been fuelled by rising crude prices and a steep increase in bond yields.
The upbeat start followed a slight reduction in the stress from the two main sources of market anxiety.
Crude oil retreated after a recent rally, with Brent falling to below $108 in early trading, while the 10-year US Treasury yield dropped back under 5%, having briefly crossed above that level on Tuesday. The latter, arguably, helped ease some immediate pressure on equity valuations.
These factors are enabling European equities to bounce back from Tuesday's three-month low, a day when banks and other rate-sensitive stocks were under significant selling pressure.
Wednesday's recovery was widespread, yet it felt more like a pause rather than a full reversal, as market participants focused on the Federal Reserve's interest-rate decision due later in the session.
US stock futures also indicated a modest advance, with contracts on the S&P 500 rising 0.3% and those on the Nasdaq gaining 0.5% at the start of the session. This represented a slight recovery after US markets declined on Tuesday amid rising oil and bond yields.
Overall, the move appears to be a relief rally rather than a genuine return to risk appetite. Trading is centred on the Fed's decision, with a quarter-point rate increase widely expected. The key uncertainty is what the central bank indicates regarding further tightening, given that price pressures remain high.
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Fidelity's Jurrien Timmer questions the 60/40 portfolio comeback as higher Treasury yields sustain a positive stock-bond correlation.
The Bank of England is expected to raise Bank Rate to 4% on Thursday, its first hike of this cycle, with inflation at 3.5%.
Japan's services PMI rose to 51.7 in October, but the composite PMI slipped to 52.1, a five-month low, as hiring slowed and cost pressures persisted.
September data showed Australia's goods surplus at about A$2.8 billion, a seven-month peak, with LNG and metals exports up and gold imports down sharply.