The start of a new year always ignites thoughts, reflections about the past period but it also makes me look ahead. This article, published by Alliance Bernstein, provides an interesting insight into the ‘tense’ relationship between forecasting on the one hand and learning from the past on the other.
From a professional perspective, I always strive to find the right balance for my clients between uncertainty and opportunity.
Here is an excerpt of the article and below a link to the original.
After the rocky end to 2018 left markets in turmoil, investors braced for a storm in 2019. Little did they know nearly every asset class would have a positive return, unemployment would continue to decline, and consumer spending would drive economic growth higher. But some cracks in the armor that emerged in 2018 began to bubble up again in 2019. Delayed resolution on trade with China and Brexit hurt global manufacturing and business confidence and led to record outflows from equities into bonds and cash. So, in a year where the expected failed to come to fruition and the unexpected dominated, what lessons can we learn?
Five Lessons from 2019
Forecasting the markets in the short-term with any level of accuracy is extremely difficult. That’s why it’s important to assess and learn from history when formulating future expectations. Here are the five most noteworthy lessons of 2019:
Lesson #1: Don’t fall for a “head fake”: 2018 ended with a thud as markets fell 19.4% over 14 weeks.
Lesson #2: The Fed can make a u-turn: Not unlike the majority of investors, we expected interest rates to increase in 2019. The Fed ultimately lowered rates by 75 bps.
Lesson #3: Focus on the house, not the zip code: Amid the uncertain fate of Brexit and the eventual impact on regional economies, some investors avoided Europe altogether last year.
Lesson #4: Don’t put all your eggs in one basket: The US equity market hit all-time highs in 2019 and investors that were predominately invested in that market outperformed the typical 60% stock/40% bond portfolio.
Lesson #5: Expect the unexpected: Trying to predict human nature, let alone political negotiating tactics, is extremely difficult.
The Past Informs but Doesn’t Shape the Future
Last year, we were reminded that markets can go up, even when investor risk aversion is rising, the Fed can still provide support, and investors can shrug off the surrounding geopolitical and economic environment. There’s a unique thread through all these lessons—uncertainty in market and investor behavior. Some market participants try to mitigate uncertainty and risk by moving in and out of the market at the exact ‘right’ time. But history suggests that investors who attempt to time the market usually end up with lower returns compared to those who stay the course. Staying the course, though, requires that we consider various market scenarios and their likelihood of occurrence, to provide a range of possible outcomes, so we can be prepared for whatever the market throws our way.
Tom Miele – Wealth Advisor at Bernstein Private Wealth Management
Tags: Tom Miele, Thomas Miele, Bernstein, Alliance Bernstein