2019 has been a great year for investors who favor stocks and bonds, Pictet Asset Management says.
According to the asset manager, returns from either investment are at the best they’ve ever been for the past 26 years.
At the beginning of the year, several analysts were skeptical of the market, especially with the ever-increasing interest rates coupled with the Federal Reserve’s stimulus withdrawal. They were all but sure that these two events would have a negative effect on assets.
Different from their predictions though, the S&P 500 has offered over 25% of gains this year, and bonds have also registered a similar return.
Thanks to fears brought on by the US trade wars, investors chose to take the equity/bond route which is ordinarily a safe bet, and they’ve not been disappointed.
Luca Paolini, the Pictet chief strategist, while speaking to CNBC, confirmed his firm’s claim. He said that it was actually surprising that global investors who split their investments between equities and bonds at 50% each made an overall 16% profit, the largest percentage the market has witnessed since 1993.
Paolini also touched on the fears that were present when 2019 began, explaining that they started last year. In the business world, there was a lot of debate surrounding global recession and the US-Chine trade war.
Some financial experts’ school of thought was that the trade war would force the central bank into action, in a bid to shelve some of the heat the US economy was taking. In late January, experts at Goldman Sachs were predicting a four-time increase in interest rates by the Federal Reserve.
Catching almost everyone by surprise though, they went ahead and reduced the interest rate three fold, a move that sat well with the White House. The reduction in interest rates, as such, went on to boost the investment markets.
Paolini admits that the move by the central bank was an unexpected one, and he doubts that they’ll repeat it in 2020. All the same, it proved to be a success in 2019.
Not in the Near Future
In fact, Paolini, and by extension the entire Pictet Asset Management Team, don’t expect the Federal Reserve to cut interest rates again within the next five years. According to their analysis, doing so would result in negative returns for equity-bond investors.
Another financial expert, David Miller, the investment director at Quilter Cheviot, seems to disagree with Paolini, although he does not admit it outrightly.
Miller praises the Federal Reserve’s trick in ensuring that companies registered profits, and were in turn, able to pay dividends. He is looking forward to a positive 2020, in the hopes that the central bank has an ace in the hole for the coming year too.
The investment director says that bonds and equities are becoming more valuable by the day, and he won’t be surprised if 2020 becomes as good a year as 2019 has been. He was just short of saying that it could probably be better.
But as it is with investments, you can never be really certain of what will happen the next minute. Even an in-depth analysis can lead to wrong predictions. In this market, time is your only friend.