Macro Musings January 2020
2019 YEAR IN REVIEW
- The positive MACROCAST™ score is being driven by strength in the Aggregate Economy indicators. The negatives are almost exclusively in the Valuation category.
- While 2018 saw muted returns across the board, 2019 will go down as the year that everything worked. Equities, bonds, and precious metals all saw higher than average returns.
- The market was up over 30% in 2019. Past instances of similarly strong market returns were followed by more gains in the next year.
2019: the year everything worked?
If 2018 was the year nothing worked (see last January’s Macro Musings), 2019 was the exact opposite. Risk assets across the globe were up double digits. US bonds had their best year since 2002. Even gold showed some life, returning over 18%; its best year since 2010.
Cash, which was the only major asset class with a positive return in 2018, was the worst performing asset class in 2019.
Asset class review
Some additional insights:
US Stocks led equities (again). The rebound in risk assets was broad, with every major equity asset class up double digits.US large-cap stocks led the group for the 2nd consecutive year.
Despite the big rebound in stocks, bonds did great. The Aggregate Bond index returned close to 9% (its best year since 2002!) driven by strong returns in high yield and corporate bonds, as well as three rate cuts by the Federal Reserve.
- Emerging markets were the worst performing equities in 2018 and 2019. Emerging markets went from being first to worst from 2017 to 2018. Often, you’ll see the worst performing asset class rebound significantly in the following year (see emerging markets from 2008 to 2009), but that wasn’t the case in 2019.
- The S&P 500 outperformed Novel’s Asset Allocation strategy for the 11th consecutive year. Novel Investor outlines a basic asset allocation portfolio (60% equities/40% fixed income), which is included in the above table under AA. We first highlighted the recent weakness of the Asset Allocation portfolio in 2015. In 2019, the S&P once again outperformed the AA portfolio. Even with a large bond allocation, the AA model consistently outperformed the S&P 500 from 2000-2008.
What strong performance in 2019 could mean for THE coming year
Strong performance often begets strong performance. The S&P 500 was up over 30% in 2019; and historically, big gains in a calendar year saw further upside the following year (table from Canaccord Genuity):
Note: the only two down years in this sample occurred either during or leading into a recession.
Further, the market achieved multiple all-time highs in the 4th quarter and several more at the start of 2020. Far from being a negative, markets reaching new all-time highs often see above average returns going forward (chart from Strategas):
Six months after a new all-time high, stocks were up between 2% and 20%. More importantly, they were only down double digits 5% of the time. With momentum in our favor and a positive MACROCASTTM score, we are confident that a market decline similar to 2018 is unlikely in the coming months.
Whatever happens, an “average” return in 2020 is unlikely
The S&P 500 has averaged close to a 10% return per year since 1926. But that doesn’t mean most years have been anywhere close to that number. Annual returns rarely come close to the average with the market rising between 8% and 12% in only 6 of the past 93 years (chart from Vanguard):
In case you missed it
Be sure to listen to the latest episode of the Corbett Road Podcast where we discuss the year in review and our 2020 market outlook. It can be found on our website under Resources & Education.
The chart(s)/graph(s) shown is(are) for informational purposes only and should not be considered as a suggestion of any investment recommendation, investment strategy, or as an offer of advice to buy, sell, or exchange any investment product or investment vehicle. Past performance may not be indicative of future results. While the sources of information, including any forward-looking statements and estimates, included in this (these) chart(s)/graph(s) was deemed reliable, Corbett Road Wealth Management, Spire Wealth Management LLC, Spire Securities LLC and its affiliates do not guarantee its accuracy.
The aforementioned indices and indicators are not available for direct investment. The index returns do not reflect any management fees, transaction costs or expenses. Index information is provided for illustrative purposes only and is not meant to represent the performance of a fund.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions of Spire Wealth Management LLC, Spire Securities LLC or its affiliates.
All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. MACROCASTTM is a proprietary index used by Corbett Road Wealth Management to help assist in the investment decision-making process. Neither the information provided by MACROCASTTM nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. The phrase “the market” refers to the S&P 500 Total Return Index unless otherwise stated. The phrase “risk assets” refers to equities, REITs, high yield bonds, and other high volatility securities. Past performance is no guarantee of future results.
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