Forget about the 60/40 portfolio. This year, investors have better options for better diversification and greater returns. According to Bank of America, market participants in 2026 will be better off splitting their bets evenly between stocks, bonds, cash and commodities, rather than the traditional split between stocks and bonds. Michael Hartnett, the bank’s chief investment strategist, called the allocation a “baby-sleeping” portfolio, saying it had its best year since 1933 and was the third-best-performing portfolio in history to beat 60/40. Hartnett said in his weekly market note that the portfolio is clearly “not suitable for everyone, but the returns require allocators to source low exposure to commodities and buy natural resources.” The recommendation comes as markets seek new highs in stocks despite the Iran war, with strong returns in commodities due in part to the fighting. The S&P 500 index is up more than 4% this year, and U.S. crude oil is up more than 60%. Bond fund returns have been flat this year, but with Federal Reserve interest rates on hold, cash has benefited from decent yields while some strategies have been profitable. Hartnett said the theme for investors is that “money grows on C,” specifically curve steepeners for bond markets, consumer cyclicals, chip stocks and commodities, and that these trades will benefit as Wall Street discounts the return of “the nominal economic boom narrative, President Trump’s pivot to affordability to win the midterm elections (US-China trade easing in May), and geopolitical needs.” With a monopoly on chips, rare earths, minerals and oil to win the AI war, the US (regime) is willing to bail out strategic domestic companies and take on allies who deliver oil and chips in dollars and US Treasuries…and the tech bubble is finally back in anticipation of the biggest IPO in human history.” Hartnett noted that despite the money flowing into stocks, sentiment is not overheating as futures traders continue to hedge against potential stock price declines.
