Muzinich Weekly Market Comment: 60/40

June 29, 2026

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For years, investors have questioned whether the traditional 60/40 portfolio still has a place in modern markets. Recent market moves suggest those doubts may be premature. As inflation pressures ease and bonds once again provide diversification when equities falter, the case for balanced portfolios is quietly reasserting itself.

Post-WWII investment culture was deeply conservative. Pension funds and other institutional investors kept much of their capital in government bonds and cash, while equities were widely viewed as speculative and unsuitable for fiduciary portfolios. That began to change in 1952, when Harry Markowitz published a landmark paper showing that combining assets whose returns don't move in lockstep could reduce volatility without sacrificing return - the birth of diversification. James Tobin extended this in 1958, introducing the risk-free asset into the framework and showing that every rational investor should hold the same portfolio of risky assets, differing only in how much they keep in cash.

The final piece of an investment style that would go on to dominate for 40 years came in 1964, when William Sharpe published the Capital Asset Pricing Model (CAPM), showing that if investors are rational and share the same expectations, the only portfolio risk anyone needs is the entire market, weighted by its market value. At the time, US equities and bonds outstanding stood at roughly a 60/40 split –the birth of the balanced portfolio was in place.¹

The media have been writing obituaries for the 60/40 portfolio for years. Yet the boring, diversified portfolio has a remarkable habit of surviving its critics. Since 1969, 2022 is the only year in which US equities and government bonds both delivered negative returns, an exceptionally rare breakdown in diversification; last week was a reminder of why the 60/40 strategy endures.² 

Government bond yields fell across the curve last week, with US Treasuries modestly outperforming. The catalyst was the growing realization that Iran-related geopolitical risk is fading. Negotiations are progressing – notably, the US Treasury issued a 60-day waiver authorizing the sale of Iranian oil, a move that could unlock up to 60 million barrels currently held on tankers. Supply from the region is recovering with Persian Gulf exports having returned to around 63% of normal levels, and the pace of global inventory draws have slowed sharply, from 5.5 million barrels per day (mb/d) in May to 1.8 mb/d in June.³ 

The news pushed oil prices lower, with West Texas Intermediate (WTI) settling at around US$70 per barrel, a level broadly neutral for both growth and inflation. That repricing gave investors the confidence to unwind the twin fears that had dominated fixed income positioning, namely, the fear of oil suppressing economic activity while simultaneously pushing prices higher.

The effect is clearly visible in the front end of the government bond curves. Dissecting the 2-year point into its growth and inflation components, the inflation component fell more than 15 basis points (bps) in both the US and Germany, while the growth component ticked higher (see Chart of the Week). The message from markets is unambiguous, the energy shock is fading, and with it, the tail risk of stagflation.

Further good news for US fixed-income investors came from the May Personal Consumption Expenditures (PCE) report, which was softer than feared. Headline PCE rose just 0.4% month-over-month, below the 0.5% consensus, while core PCE was in-line with expectations. More importantly, the 3-month annualized rate of core PCE moderated to 3.5% (vs. 3.8% prior). Digging deeper into the monthly core inflation data revealed that pricing pressure was concentrated in services, particularly portfolio-management fees and air transportation. These components are unlikely to remain as elevated going forward, adding to the conviction this week that underlying inflation pressures may be transitory.⁴

The activity side of the report was also supportive. Personal income rose a strong 0.7%, comfortably above the 0.4% consensus forecast, and consumer spending remained firm. Real personal consumption rose 0.3%, rebounding from April's price-driven contraction, with the gains concentrated in goods. Real goods spending was broad-based across categories, including a notable pickup in durable goods consumption.

However, the same analysis at the 5-year point tells a more nuanced story. Again, both the US and German curves reflect inflation relief, but an important divergence lies in the growth component. In the US, investors appear comfortable with a disinflationary summer (falling inflation, rising growth). However, in Germany, the picture is less benign; as the growth component also declined, a combination of falling inflation and growth is more commonly associated with a growth scare and/or policy mistake.

This divergence may explain the contradictory signals coming from European Central Bank (ECB) policymakers last week. Lagarde, speaking to the European Parliament's Committee, struck a measured tone, acknowledging the scale of the shock while pushing back against the case for aggressive tightening: "The shock is too large to look through without jeopardizing our target. But we see no evidence yet of de-anchoring of inflation expectations or second-round effects that would warrant a more forceful policy response."⁵ Meanwhile, Executive Board member Isabel Schnabel struck a markedly different note, arguing the ECB will likely need to raise borrowing costs further to bring inflation under control.⁶  

As for equity markets, they endured a difficult week, with the Bloomberg World Large and Mid-Cap Index falling more than 2%. As geopolitical risks faded, market bears returned to the longer-standing concerns around AI: stretched valuations, competitive disruption and crowded positioning. These fears hit Asia and the US the hardest. South Korea's KOSPI fell 7%, and in the US, the Nasdaq dropped 4% on the week. At the same time, the ironically named Magnificent Seven – for June at least – are now down more than 12% from their peak at the end of May. Europe fared only slightly better, with the Euro Stoxx 50 falling more than 1%, suggesting that growth concerns, and perhaps fears of a policy mistake, are beginning to weigh on investor sentiment.

Overall, it was a good week for bonds and a difficult one for stocks, another reminder that the 60/40 portfolio, despite being perpetually declared dead, continues to outlive its eulogists. As we reach the halfway mark of 2026, the case for revisiting a fixed income allocation is becoming harder to ignore. For investors whose concerns center on AI valuations, stretched valuations and positioning, or slowing growth, bonds did exactly what they were designed to do last week. The wheel, it turns out, did not need reinventing.

Chart of the week: Falling inflation expectations

Source: Bloomberg, as of June 26, 2026. 1. Change in inflation breakeven. 2. Change in real yield. 3. Regime number. Muzinich views and opinions are subject to change.  For illustrative purposes only, not to be construed as investment advice or an invitation to engage in any investment activity.

All sources are Bloomberg unless otherwise stated.

Past performance is not a reliable indicator of current or future results.

References to specific companies is for illustrative purposes only and does not reflect the holdings of any specific past or current portfolio or account.

References

1.Randy Cohen, "Spectacular Past and Concerning Future: The 60/40 Portfolio," CAIA Association, June 24, 2023, https://caia.org/blog/2023/06/24/spectacular-past-and-concerning-future-60-40-portfolio.
2.CNBC, “Why the 60/40 portfolio is on track for its worst year ever,” October 3, 2022
3.Goldman Sachs Research, “Oil Tracker: Gulf Flows Recover: Market Fast-Forwards to Future Surplus,” June 24, 2026
4. Bloomberg, “US REACT: Hot Inflation, Spending Data to Keep Fed Cautious,” June 25, 2026
5. Reuters, “ECB’s Lagarde plays down second-round inflation fears,” June 22, 2026
6.Bloomberg, “ECB’s Schnable Sees Need for Further Hiking to Meet 2% Target,” June 24, 2026

This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed by Muzinich & Co. are as of June 19, 2026, and may change without notice. All data figures are from Bloomberg, as of June 26, 2026, unless otherwise stated.

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