What do current market movements in stocks and bonds have to say about 60/40 fund weights?

This is the February 2024 installment of a series of posts we make to track how the weights of a synthetic 60/40 stock/bond portfolio evolve intra-month. Our last post is here.

Each month we coduct a simple experiment: track the cumulative intra-month return of two stock/bond indices (say SPY and TLT). Next, combine that data to estimate a one standard deviation envelope of weights as a function of the days in the month. Then measure where the current weights sit within the envelope. This provides a measure of how much a typical 60/40 fund needs to move in order to restore equilibrium.

Figure 1 depicts the envelopes and current weights for SPY and TLT.

Figure 1: Stock/Bond Weights For February 2024

Current deviations imply that, as of today, 60/40 funds would be sellers of stocks and buyers of bonds with moves of just over 150 basis points to restore equilibrium. Relative to history, stocks and bonds are over one standard deviation out of balance.