DWM’s 4Q19 Market Commentary & A Look Into 2020

Happy 2020! No doubt you have heard the term “20/20 vision” over the last several weeks as we enter this new decade and all of the imagery that comes with it. As you probably already know, 20/20 vision is synonymous with perfect vision. As financial Sherpas, we are always striving to provide our clients with that – to observe, to envision, to help foresee, to project, and to be on the lookout! We can’t guarantee that our outlook will be spot on, but we certainly can help our clients plan and make projections for what’s next on the horizon.

But before telescoping ahead, let’s look back on fourth quarter 2019 (“4Q19”) and calendar year 2019 and the bedazzling year it was! We’ve put the magnifying glass on this investment landscape panorama so you can visualize the details!

Equities: No, it wasn’t a hallucination… Equities, as evidenced by the MSCI AC World Index, rallied to close the year, up 9.0% for 4Q19 and an eye-popping 26.3% for the year! Domestic large cap stocks*, particularly the growth-oriented FAANG group**, kept outperforming, up 9.1% and 31.5%, 4q19 and YTD, respectively. International equities* also participated in the 4Q19 rally, +8.9% for the quarter, to finish the year +21.5%. Unlike the growth and momentum-driven environment of late, we and many other experts expect valuations to actually matter in 2020.

Fixed Income: Don’t get bleary-eyed just yet, as the positive readings keep coming! In a blink of the eye, the Fed went from a hawkish stance to a dovish one which amounts to massive liquidity support and lower rates, which in turn pushes bond prices up as evidenced by the Barclays US Aggregate Bond Index & the Barclays Global Aggregate Bond Index turning in a solid quarter, up 0.2% and 0.5%, and an eye-catching year-to-date (“YTD”) return of 8.7% and 6.8% respectively!  The Fed appears to be on hold for the foreseeable future, thus barring a setback on trade, we expect Treasury yields to move higher as recession fears fade.

Alternatives: Sometimes this asset class goes unnoticed or invisible, but not in 2019 as alts produced some very good returns. In fact, the Credit Suisse Liquid Alternative Beta Index, our chosen proxy for alternatives, showed a 2.2% gain on the quarter and finished up 8.1% for the year! Standouts include infrastructure*** (+2.9% 4Q19 & +27.8% YTD) and gold**** (+2.8% on 4Q19 & +18.0% YTD). Such spectacles!

Recall that in 2018 almost every asset class and investment style went down; 2019 was pretty rare in the sense that it was just the total opposite of that – virtually everything went up, i.e. no blind spots! In fact, the balanced investor – those with sizable allocations to equities, fixed income, and alternatives – should be seeing double-digit returns in the teens! Pretty amazing! The key is not to be short-sighted and getting caught up in recency bias. One needs to be realistic when planning for the future. If you are thinking that the environment is as pretty as the light prism above, you have blinders on. Alas, here is some near term darkness:

Investor sentiment is really high now with all the recent good news. That typically is a leading indicator of less-than-stellar times. And because of this high investor sentiment and recent stock market rally, valuations in certain areas, particularly the S&P500, are getting uncomfortably high. The market seems almost priced to perfection. So far the market has shrugged off scary news like the recent US killing of Iran’s most famous military commander. But it’s only speculation that that can continue. Further, manufacturing and business investment is still struggling, which will most likely continue until we get a more comprehensive trade deal, more than the vague preliminary one being discussed now. The good news is that it appears that US and China are both working on a resolution, but don’t be dazed and confused if talks fall apart. And, of course, we have an upcoming Presidential election which brings more uncertainty into the mix.

In conclusion, it’s a beautiful scene right now with most investors’ portfolio values near all-time highs. But like rays of light, the direction of the markets and portfolios don’t forever stay the same. We are here to help now and also when the light ray inevitably bends.

DWM enjoyed watching out and doing all it could for its clients in the last decade. And as we now start into this new decade, we continue to be on the lookout over our clients, their portfolios, and their wealth management needs. Serving our clients make us smile. On the flash of light, we say “cheese”!

Cheeky Smiles

As always, don’t hesitate to contact us with any questions or comments.

Brett M. Detterbeck, CFA, CFP®

DETTERBECK WEALTH MANAGEMENT

*represented by the S&P500 Index

** FAANG = Facebook, Amazon, Apple, Netflix and Google

***represented by the Frontier MFG Core Infrastructure Fund

****represented by the iShares Gold Trust

 https://dwmgmt.com/