the unsung hero of your portfolio

Significant attention was paid to the stock market during the first quarter of 2020, and for obvious reason. By most measures, the speed in which the market sold off was unmatched in history. Despite a sharp rally during the final days of March, the U.S. stock market [1] began Q2 down over 20% for the year. With investor focus directed at the stock market, developments within other asset classes may have largely been overlooked. Lost in the headlines quoting how many points the Dow was up or down each day (hour?) were updates on the bond market.

Bonds are boring. While you may hear someone talk about their splashy purchase of Tesla, you probably won’t hear them brag about buying a 3-year Treasury bond. Bonds do not deliver the same excitement that comes with the upside potential of stocks. When the investment world is seemingly crashing down around you, however, boring starts to sound pretty good.

Bonds serve a critical role, providing a ballast that allows investors to balance the trade-off between risk and return. By allocating more to bonds, an investor generally gains some stability in their portfolio’s value, but also forgoes some potential upside. During the volatile start to the year, bonds delivered on this function. While stocks were down over 20%, the U.S. bond market [2] finished the quarter with a roughly 3% gain. For an investor that chose to balance the upside potential of stocks and the relative safety of bonds with a 60/40 (stock/bond) allocation, the return during the quarter was a more palatable -12%, relative to the all-stock portfolio.

This is not to say that the bond market did not have its share of hiccups. Prior to the Federal Reserve making some aggressive moves, the ability to buy and sell bonds efficiently (liquidity) became constrained. Low quality bonds, issued by risky borrowers, experienced larger drawdowns than the broad investment grade market. Finally, with interest rates falling to historically low levels, the expected future return for high quality bonds like Treasuries are lower. Despite these issues bonds still held up their end of the bargain, and dramatically softened the blow of falling stock prices.

Nobody knows what the future has in store for us. The market could rally back towards the highs, we could retest the lows, or maybe we just muddle around near current levels. There is no shortage of very intelligent people making well-reasoned arguments for each potential outcome. The truth, however, will only be known in hindsight. This uncertainty means that the proper allocation for many investors is not a binary decision. It is not whether you should be fully invested in stocks or move everything to cash and bonds. Instead, its about the combination of the two will that provide the growth potential to achieve your financial goals, but also the stability that allows you to hold on when times are tough. Bonds may be boring, but they play a crucial role in your portfolio. During the market turmoil we have experienced this year, the U.S. bond market has delivered.

[1] Represented by the Russell 3000 Index

[2] Represented by Bloomberg Barclays Aggregate Bond Index


  • It was a strong week for equity markets. The S&P 500 gained 12.1%, logging the largest weekly return since 1974. U.S. stocks are now about 18% below the highs from mid-February, after bottoming on 3/23 (-33.8%). This week kicks off earnings season, as companies begin reporting 1st quarter results. Earnings season always has the potential to move markets, but in the current environment we could potentially see some amplified market reactions.   
  • Over the weekend the members of OPEC, and some additional oil producing nations reached an agreement to limit production by nearly 10 million barrels per day. At approximately 10% of global oil production, this cut is the largest on record. The move is meant to support oil prices that have been pressured by weak demand due to the Covid-19 outbreak, and the price war between Russia and Saudi Arabia. Many analysts doubt whether the amount of cuts are large enough to balance the current supply and demand imbalance.  
  • On Friday, the Federal Reserve announced details on a series of new and expanded economic support programs that will total $2.3 trillion. The programs include support for local governments, businesses with up to 10,000 employees and below $2.5 billion in revenues, and an expansion of market support measures including the purchase of corporate bonds that recently lost their investment grade status. 



  • OPEC and Allies Finalize Record Oil Production Cut After Days of Discussion (CNBC)
  • Federal Reserve Unveils Details of $2.3 Trillion in Programs to Help Support the Economy (CNBC)
  • Looming Earnings Season Offers Next Test for Rebounding Stock Market (WSJ)


  • Pandemics vs. Post-War Recoveries (AWOCS)
  • On the Dash to Cash and What It Means for Markets (OfDollarsAndData)
  • This Market is Made for Warren Buffett. Why Has He Gone Quiet? (Barron’s)


  • By the Numbers: How the Coronavirus Pandemic Continues to Devastate the Restaurant Industry (Eater)
  • America is Drinking its Way Through the Coronavirus Crisis – that Means More Health Woes Ahead (TheConversation)


Source: MarketWatch


Source: Morningstar Direct.

Source: Morningstar Direct.



Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

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Josh Jenkins is a Senior Portfolio Manager & Head of Research at Lutz Financial with over nine years of investment experience. He is responsible for assisting clients in the construction, selection, and risk assessment of their investment portfolios. In addition, Josh will provide on-going research and trade support.

  • Asset Allocation & Portfolio Management
  • Investment & Market Research
  • Trading
  • Chartered Financial Analyst (CFA)
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
  • BSBA, University of Nebraska, Lincoln, NE

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