• A powerful combination of macro factors has come together to push stocks and bonds toward strong YTD total returns.
  • Stocks have risen more than 28% YTD, boosted by easy monetary policy combined with still-significant, though slowing, corporate stock buyback activity.1 Meanwhile, bonds have returned more than 8%, benefiting primarily from a peak-to-trough interest rate decline of approximately 120 bps.1
  • Against this backdrop, the traditional 60/40 portfolio – based on a 60% allocation to equities (growth) and 40% to traditional bonds (income) – has seen a 20% YTD return, stronger than any full calendar year since 2000.2
  • While 2019 has been a banner year for the 60/40, it could be a tough act to follow. Bond prices are unlikely to benefit from further interest rate declines next year as significant as this year’s. Furthermore, stocks could be hampered by a more challenging earnings picture going forward as the past three quarters have already seen annualized earnings declines.
  • Investors may be well served by preparing for heightened volatility and a more challenging return environment across traditional asset classes in 2020. Volatility could be fueled by uncertainty surrounding the upcoming presidential elections, a deeper corporate earnings slump coupled with high equity valuations, or any number of yet-unknown geopolitical risks.

1 S&P 500 and Bloomberg Barclays U.S. Aggregate Bond Index, as of December 12, 2019.
2 Bloomberg Finance, L.P., as of December 12, 2019

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