2019: A Year of Both Risk and Return?
Both stocks and bonds enjoyed positive returns in the Third Quarter 2019, adding to already-impressive performance from the first half of the year. Year-to-date, the S&P 500 has returned a whopping +20.6%, while the Barclays Aggregate index of U.S. investment-grade bonds has produced an equally impressive return of +8.5%.
Declining interest rates again deserve much of the credit for these attractive investment returns. Pessimism regarding global economic growth along with central bank accommodation compressed interest rates to historically low levels, slightly inverting the yield curve in places, and in the process pushing up prices of most financial assets, real estate, and even gold.
Yet if we look beneath the surface, we cannot help but notice that the Third Quarter witnessed several extraordinary events…mileposts that might indicate to investors the nature of the current risk environment and the challenges facing us in the coming quarters. Near-term risks are difficult to anticipate or predict, but it is true that some environments—like the current one, we believe—contain more than their share of pent-up political tensions and stretched market relationships. Idiosyncratic and uncorrelated risks emerge frequently in such periods, suggesting that investors avoid over-weighting risk assets until the environment stabilizes.