After the worst yearly performance ever in 2022 , the standard portfolio of 60% stocks and 40% bonds had a solid rebound in the first month of the new year. Such portfolios gained 6.2% in January, landing the performance in the 96 th percentile of all months since 1921, according to a Wednesday note from Savita Subramanian of Bank of America. The gain was just below the 6.3% total return of the S & P 500 in the same timeframe, recouping losses from December. Following the rough performance of 2022, the pivot signals that investors are feeling more willing to take on risky assets such as stocks in renewed hope that 2023 will be nicer to markets. “We view the rally as sentiment-driven, given how bearish consensus was on 1H23 heading into this year,” said Subramanian. .SPX YTD mountain spx ytd Rebound rally The sharp rebound in January was led by the worst-performing sectors in 2022. The consumer discretionary sector added 15% and the communication services rose 14%. Risk factors were the best-performing style group, adding 13% on average, while momentum lagged, according to BofA. Bonds also rallied in January, sending long-term treasuries up more than 6.2% as yields dropped. Investment grade corporate bonds rose nearly 4%, and gold also jumped more than 6.2%. That’s a drastic difference from last year, when both stocks and bonds fell, slamming investors who used the assets to balance their portfolios. What’s next If inflation continues to show signs of easing – inching the Federal Reserve every closer to a pause in rate hikes or even a pivot to rate cuts – the rally may continue as investors feel better about snapping up risk assets. And the falling inflation could send rates lower, in turn boosting bond prices. In January, Bank of America’s sell side indicator fell near its lowest level since 2017. The indicator suggests a price return of more than 16% over the next 12 months, which would put the S & P 500 at about 4,700 – much higher than BofA’s year-end target of 4,000.
