The year 2019 was a classic example of the markets doing things most people didn’t
anticipate. Of all the forecasts made this time last year, the only one really worth
counting is that things change. What’s more, they often change in ways we least expect.
Imagine going back to the 4th quarter of 2018 when most of the major equity asset
classes were down double digits, and many of the major indices closed out 2018
with their worst yearly losses since 2008. Looking back twelve months ago investor
optimism was limited at best, and investor anxiety was at a surplus.
Unforeseen to most, here’s how 2019 finished with some of the major indices.
|
Full Year 2019 |
|
S&P 500 |
31.49% |
U.S. Large Cap |
Russell 2000 Index |
25.53% |
U.S. Small Cap |
MSCI EAFE Index (Net) |
22.01% |
Developed Markets-non U.S. |
MSCI Emerging Markets Index (Net) |
18.44% |
Emerging Markets |
Dow Jones U.S. Select REIT Index |
23.10% |
Real Estate |
Bloomberg Barclay's U.S. Aggregate Bond |
8.72% |
Broad U.S Bond Market |
Source: Zephyr StyleADVISOR |
Going forward, a question often asked is, what are the markets going to do this year? Sadly, nobody truly knows what the
market will do in 2020, or each year thereafter, but we do have some general barometers to have reasonable expectations
over the coming decade.
First, inflation as measured by the CPI is expected to be around 2%,1 the World Markets as measured by the MSCI All
Country World Index are yielding around 2%,2 and global growth estimates in real GDP growth from the International
Monetary Fund are around 3.5%.3 Global equities, therefore, would have a reasonable expectation of returning somewhere
in the 7% to 7.5% range over the coming decade.
A general measure for bond expectations would be the current yield on the 10 yr. Treasury, which as of this writing is
1.89%,4 so bonds should have a reasonable expectation of around 2%.
One has to ask when constructing long-term asset allocation, how much of the 7%-to-7.5%, component and how much of
the 2% component are desirable to hold. These returns will most certainly deviate from year to year, but they do provide
a sensible starting point for deciding on an overall portfolio mix of stocks vs. bonds.
Finally, a big question weighing on many
is what will happen to markets this year
with the pending Presidential election?
Again, nobody truly knows what markets
will do, but we do have some data that
highlight the importance of staying
invested long-term no matter who
occupies the White House.
Using the S&P 500 Index back to 1928 as a
general gauge, we see that on average the
market returns 9.9% in years subsequent
to a Presidential election and 11.3% on
average during years after an election.
Over the long-run, whichever party
occupies the White House, the market has
done quite well in growing investor capital.
Markets will continue with uncertainties
in 2020 and beyond that will constantly
test investor patience. Just look at the
recent headlines with the Middle East
tensions around Iran. Uncertainty is a
constant. The “Good Old Days” didn’t
look that way when they were “good
new days.” Instead, people saw them as
chaotic, uncertain and unpredictable.
At CNB Wealth Management, we’ve found
that the best way to offer the highest
probability of reaching your long-term
financial goals is to stick with sensible
strategies that are broadly diversified,
have reasonable expenses, and employ a
disciplined rebalancing process. Sticking
to a good portfolio over the long-term is
better than constantly trying to find the
perfect portfolio in the near term.
As always, you can contact your Relationship Manager with any investment or financial planning questions you may have.
Our knowledgeable and experienced team will work with you to ensure your plan stays on track to meet your goals - now
and in the future.
Data as of 12/31/19.
1Source: https://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-professional-forecasters/2019/survq419
2 https://www.morningstar.com/etfs/xnas/acwi/quote
3Source: https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD
4Source: https://www.bloomberg.com/markets/rates-bonds/government-bonds/us
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