The 60/40 portfolio, once considered obsolete post-2022, experienced a remarkable resurgence in its best month in years. The Bloomberg Global EQ:FI 60:40 Index recorded a notable 7.6% return, driven by a simultaneous rebound in both stocks and bonds from their recent declines. This revival gained momentum amidst speculations of the Federal Reserve considering interest rate cuts, fostering optimism that rates may have peaked. This signaled a potentially more favorable environment for both equity and fixed income markets.
It is crucial to note that stock markets often encounter challenges when interest rates are reduced, as such actions are typically taken to prop up markets. Despite this, November witnessed buoyant markets, with the S&P 500 and the Bloomberg USAgg Index closing the month on a positive note.
The Strategic Program, known for performing well in declining markets, showcased positive gains from August through October. However, in November, as the S&P 500 surged and experienced minimal losses, the opportunities for profitable put spread trades diminished. The rise in the S&P 500 also led to the VIX index hitting its lowest level since January 2020, adversely affecting ratio call spread trades. While low-cost put spreads were held during the month, monetizing them to the same extent as in previous months proved challenging.
Despite the very low volatility, the Tactical Program identified profitable trading opportunities, resulting in a net gain for the month. The steady ascent of the S&P 500 made put option sales seem attractive, but the declining VIX reduced the premium on these options, limiting the appeal and scope of our engaged trades.
Following robust market performance, there is often an expectation for the trend to continue indefinitely. With positive December seasonality underway, a continued rally seems apparent. However, such scenarios can yield surprises. If the likelihood of rate cuts diminishes, inflation resurfaces, or geopolitical tensions escalate, the current optimistic market outlook could swiftly shift. During such times, we remain particularly vigilant, identifying profitable trading opportunities while staying alert to unforeseen risks that could rapidly and significantly impact the stock market.
