The 60/40 stock-bond portfolio appears to be broken. Here’s how it could change.

For stocks and bonds to post a negative correlation again, there has to be a change in the inflation regime, Alexandra Wilson-Elizondo, the head of multi-asset funds and model portfolio management at Goldman Sachs
GS,
+0.01%,
said in a roundtable discussion held by the bank. 

“We do agree that you’re going to continue to see that disinflationary trend, which could take a little bit longer than expected, but ultimately, we should get down to that 2% [interest-rate] target with the current level of rates that we’re seeing,” said Wilson-Elizondo. 

Still, the Treasury markets have been mostly driven by a large amount of leverage, which primarily comes from the U.S. federal deficit, Wilson-Elizondo noted. “Every time you see large funding announcements or expectations of issuance, it makes it very hard for the rate market to rally even with the disinflationary trend,” she said. 

Investors have to watch a large election cycle across different economies to look for signs of changes, according to Wilson-Elizondo. “Ultimately, we do expect in particular the front end of the curve to perform quite well in a selloff,” she added. 

Investors should also look at other assets, such as gold and commodities, for diversification and risk-management purposes, the analyst noted. 

U.S. stocks ended Tuesday higher, with the Dow Jones Industrial Average
DJIA
up 0.2%. The S&P 500 rose 0.3% and the Nasdaq Composite
COMP
gained 0.9%, according to FactSet data.