After the worst year-to-date performance ever in 2022, the standard portfolio of 60% stocks and 40% bonds posted a solid recovery in the first month of the new year. . Such portfolios grew 6.2% in January, performing at the 96th percentile in all months since 1921, according to a Wednesday note from Bank of America’s Savita Subramanian. The gain was just below the S&P 500’s total return of 6.3% in the same time frame, offsetting losses from December. Following the tough 2022 performance, the pivot signaled that investors Investors are feeling more willing to buy risky assets like stocks with renewed hope that the market will be more favorable in 2023. “We see the rally as driven by sentiment, based on the level of consensus bearish in the first half of this year.” .SPX YTD climbing spx ytd Growth recovery Strong recovery in January was led by worst performing sectors in 2022. Consumer discretionary sector up 15% and media services up 14 %. According to BofA, risk factors were the best performing style group, gaining 13% on average, while momentum lagged. Bonds also rallied in January, sending long-term Treasuries up more than 6.2% as yields fell. Investment grade corporate bonds are up nearly 4% and gold is also up more than 6.2%. That’s a big difference from last year, when both stocks and bonds fell, to the detriment of investors using assets to balance their portfolios. What’s Next If inflation continues to show signs of easing – the Federal Reserve inched closer to a pause in rate hikes or even a pivot to rate cuts – the rally could continue as investors feel better about embracing risky assets. And falling inflation could lead to lower interest rates, which in turn boost bond prices. In January, Bank of America’s sell-side indicator fell to near its lowest level since 2017. The indicator shows a return of more than 16% over the next 12 months, which would put the S&P 500 around 4,700 – much higher than BofA’s year-end target of 4,000.