Investors set to see stellar returns

Unless a once-in-a-decade reversal hits, investors are about to book once-in-a-decade returns.

Virtually everything is winning in this remarkable year, and the world’s major asset classes are collectively on course for the strongest annual performance since 2009. Even in a go-slow week, the S&P 500 posted four record closes.

“We call it a grand cru, which in wine terms means a very good vintage,” said Dirk Thiels, the Brussels-based head of investment management at KBC Asset Management NV.

The scorecard tells the story: America’s equity benchmark has climbed 28 per cent. A global stocks gauge is up 23 per cent. A worldwide credit index rose 10 per cent. Emerging-market sovereign dollar bonds added 12 per cent. Even Treasuries and gold, those classic safe havens, advanced about seven per cent and 15 per cent, respectively. Staying on the sidelines was about the only way to lose — the greenback has gone nowhere in 12 months.

Yet even as they pop corks in celebration, traders mapping out their 2020 strategies know the scoreboard only tells half the story. This brilliant year has brutal roots, and it’s blurring the outlook for anyone making a call on what lies ahead.

“A lot of what we’ve seen at the beginning of the year was actually taking back some of the correction in the last part of last year,” Thiels said.

The fourth quarter of 2018 was the setback that allowed the comeback. Put aside the tendency to think in calendar years and consider some of the returns since the end of last September: The S&P 500 is up about 10 per cent. Global stocks climbed less than seven per cent. Adding those extra three months to the calculation means 50 per cent bigger gains for Treasuries and gold.

The trick of the light is that the market reversal came with a pivot by major central banks toward easier policy, which coincided with the calendar. In December 2018 the Federal Reserve was still raising interest rates; by January the hiking cycle had ended.

“Our core argument at this point will be that there’s a lot of good news priced in,” said David Holohan, head of equity strategy at Mediolanum. “It leads to what is probably a sideways move from here just by virtue of how much more expensive equities have gotten.”

Bond yields will be a similar story, he said, unless a big shift in macro data prompts any move by the Fed.