By Steve Goldstein
The 60-40 model is dead, and energy and metals can take over the fixed-income component, says Louis-Vincent Gave
Energy stocks are the new bonds, argues one strategist.
Heading into the final stretches of 2025, the run-of-the-mill balanced portfolio of 60% stocks and 40% bonds is capping a pretty good year – up roughly 11%, going by a very simple 60% in the S&P 500 tracker SPY and 40% in Vanguard’s total bond market ETF BND.
Mainly (again) due to the heavy lifting from the stock market, the 60/40 portfolio will have recorded its third straight positive year since the 2022 bloodbath when both stocks and bonds sank in value.
So it’s with at least a certain bit of skepticism to present this take from Louis-Vincent Gave, the founding partner and CEO of Gavekal Research, the Hong Kong firm known for its provocative research.
“So in the old days, the ultimate portfolio was 60 [percent] equity, 40 bonds, you rebalanced every quarter, and you go to the beach, and that delivered tremendous returns,” Gave said on the podcast Thoughtful Money with Adam Taggart. “That portfolio died with COVID.”
“It remains dead because the policy settings have now shifted structurally towards far more inflationary policy settings,” he continued. “And in that world, I think you move from 60/40, to something to, perhaps, 60% equity, 20% precious metals, 20% energy.”
Now, that portfolio certainly has done even better than 60/40 this year. If you proxy precious metals with the Invesco DB Precious Metals Fund DBP and the energy component with the U.S. Oil Fund USO – two basic ETFs – the return was a remarkable 21%. The numbers are even better with metals GDX and energy equities XLE instead.
He also mentioned a 60% equity, 25% energy, 15% metals portfolio, which still yields an impressive 17%.
The laggard in that group is energy. The oil fund, for instance, has dropped 12% this year. “It’s not that I think, oh my God, we’re going to make so much money in energy. Energy is the hedge in your portfolio. It’s what is going to reduce the volatility when inflation spikes,” said Gave.
Energy, he adds, can pay too, just as bonds did during the 1980s. “Today when you look at refiners, crack spreads are very high, they’re very sticky. Nobody’s building new refineries. These guys pay out high dividends. So yeah, I tend to believe energy stocks are the new bonds in a world in which bonds no longer work,” he said.
The obvious critique to that worldview is what happens if the economy slides into a recession. While the rise in unemployment rate shown in November’s data was for a “good” reason – i.e., more people entering the workforce, rather than people losing their jobs – the overall labor-market tenor has led the Fed to cut interest rates with the promise of doing more than less.
So it’s worth looking at how Gave’s portfolio would do in recessionary times. In 2008, when the S&P 500 dropped 37%, the oil fund tumbled 56%, while the 10-year Treasury returned a 20% gain, according to data from FactSet and NYU.
The oil fund wasn’t even in existence during 2001, but front-month crude dropped 26% this year, while the 10-year Treasury rose 6%.
The markets
U.S. stock futures (ES00) (NQ00) advanced, after the S&P 500 SPX finished in the red for three straight sessions. Oil prices (CL00) rose after President Donald Trump ordered a blockade of sanctioned tankers entering and leaving Venezuela.
Key asset performance Last 5d 1m YTD 1y S&P 500 6800.26 -1.25% 2.38% 15.62% 15.81% Nasdaq Composite 23,111.46 -2.29% 2.43% 19.68% 19.18% 10-year Treasury 4.173 1.80 3.10 -40.30 -34.60 Gold 4345 2.04% 6.54% 64.63% 67.14% Oil 56.68 -3.87% -4.60% -21.14% -18.40% Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
Fed Gov. Christopher Waller is due to make a speech at 8:15 a.m. Eastern and also interview with President Donald Trump to become the next Fed chair.
Jared Kushner withdrew from Paramount Skydance’s (PSKY) $108 billion bid for Warner Bros. Discovery (WBD), as the studio reportedly plans to advise shareholders to reject the offer in favor of Netflix’s (NFLX) bid.
Builder Lennar (LEN) reported worse-than-forecast earnings.
Ahead of Micron’s (MU) results after the close, South Korean memory chip makers including SK Hynix (KR:000660) advanced.
The White House is planning an executive order that would limit payouts at defense contractors when projects are delayed and over budget, according to Reuters and Bloomberg reports.
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-Steve Goldstein
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12-17-25 0636ET
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