Fourth Quarter Market Review – Visionary Wealth Advisors

Fourth Quarter Market Review

John Fischer, CFA®, CFP® | Chief Investment Officer
January 21, 2020

Just as surely as we’re (finally) packing away the holiday decorations and making our new year’s resolutions, you can bet this time of year comes with a flurry of investment predictions for 2020.

You can’t open a financial magazine or turn on a TV show without seeing so-called market experts doing their best fortune-teller impressions to predict what the new year means for the markets.

Markets by their very nature are uncertain, and predictions promise to remove that uncertainty for us. But that promise is usually empty and can lure investors eager to earn optimal returns off track and into trouble.

Let’s take a closer look at the hazards of experts’ predictions — and explore why you might want to focus on resolutions instead.

Experts” in the Media Have Dismal Track Records

If you watch a baseball game on TV, you’ll see each player’s batting average as they step up to the plate to bat. Before the hitter takes a swing, you have a good sense of the chance the player will get a hit or make an out.

When was the last time you saw the average rate of accurate predictions overlaid on a market expert as they give you their investment predictions for the coming year?

You don’t, of course. Doesn’t it seem strange that their all-time “batting average” isn’t displayed to enhance their stature and credibility — especially if they were any good at the game? It’s not if you consider how often they fail to get it right.

On the heels of the S&P 500 falling nearly 20% in the fourth quarter of 2018, how many experts predicted that the S&P 500 would be up 30% for 2019, more than 3 times its long-term average and the best year since 2013?

In 2018, the Fed raised interest rates four times. How many experts predicted the Fed would not only pause their interest rate hikes in 2019 but in fact reverse course to the tune of cutting rates 3 times?

The 10 year treasury yield finished 2018 at 2.69%. How many market experts predicted that the Barclays Aggregate Bond Index, a proxy for the US bond market, would return almost 9% in 2019 – a total return more than 3 times the 10 year treasury yield to start the year?

These aren’t rhetorical questions. To end 2018, Barron’s magazine asked 10 Wall Street strategists to predict the 10 year treasury yield at the end of 2019. It closed 2018 at 2.69%.

All 10 experts predicted the 10 year yield would be higher to end 2019. 5 strategists predicted it would close above 3.25%. It finished the year at 1.92%. All 10 strategists missed the mark by more than ¾ of a percent.

More comically, if this was a contest of just guessing the direction of interest rates up or down (a 50/50 chance of being right), each and every strategist still would have been wrong.

Focus on Resolutions, Not Predictions

The reason investment predictions are so dangerous to investors is because they try to predict an uncertain future, which is impossible to do consistently over time. Hitting on 3 out of 10 tries might be Hall of Fame status for baseball players. But making your investment decisions based on predictions with a similar success rate won’t lead you to your financial goals.

Rather than focus on investment predictions, investors should spend their time on resolutions. Resolutions are much more powerful than predictions for one reason: control.

We have no control over the success of market predictions. A resolution by definition is a firm decision to do or not do something. We have great control over the success of our resolutions.

To help inspire you to create some resolutions of your own, here are mine for 2020:

Set appropriate return expectations. In 2019, returns on both stocks and bonds far exceeded long-term averages. We should celebrate the successes of 2019 in getting us closer to our financial goals — and we should realize these returns were extraordinarily high and unlikely to occur again in 2020. Given valuations of both stocks and bonds are above their long-term averages, investors should prepare for lower returns in 2020 and likely beyond.

Make sure the risk in your portfolio aligns with your risk tolerance and time horizon. Research shows our tolerance for risk changes under different market conditions. After a terrific year of returns and the 10th year of market expansion, investors should make sure their portfolios aren’t taking too much risk and re-balance if necessary. The best time to buy an umbrella is before the storm when the sun is shining. Investors and the market are basking in the sun right now.

Plan for more market fluctuation in 2020. Despite the persistent headline risk of the China trade dispute and the Fed, 2019 saw modest volatility with only 2 market pullbacks of 5% and zero corrections of 10%. Given the ongoing trade negotiations with China, geopolitical concerns with Iran, and being a presidential election year, investors should prepare for more fluctuation in their portfolios in 2020.

Make investment decisions based on your investing time horizon, not based on the timing of the next recession or the name of the next U.S. President. Many experts struck fear in investors last year with talks of an imminent recession that has yet to arrive. Meanwhile, the media machine is starting to churn on the presidential election and its effect on the market.

We continue to advise investors against swerving to avoid the next recession. Let’s also remember that investors had concerns when both President Obama and President Trump took office that they would be detrimental to the market. The S&P 500 has averaged annual returns above 15% during the tenure of both presidents.1

The elections may create some short-term market volatility but ultimately the biggest drivers of market returns in the long run are the economy and corporate earnings, not which party or candidate controls the White House and/or Congress.

The Power of Preparation Over Prediction

With annual market predictions comes the incentive for investors to make short-term decisions for their long-term goals. Rather than succumbing to this annual tradition, investors should skip the fortune telling game of predicting the uncertain future and instead prepare for it.

By focusing on your investment resolutions for the new year and preparing for an uncertain future, I predict you will greatly increase the chances of achieving your financial goals. Now that’s a prediction you can take to the bank!

Source: 1 Morningstar


Important Disclosures:Visionary Wealth Advisors (“VWA” or the “Firm”) is an SEC registered investment adviser. For information about VWA’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent version is available on the SEC’s IAPD website at    This Market Review (“Review”) is provided for informational purposes only.  The Review should not be construed as personalized investment, tax or legal advice, including the recommendation to engage in a particular investment strategy.  This Review, by itself, does not contain enough information to support an investment decision.  All information in this Review is considered accurate at the time of production, but no warranty of accuracy is given.  Furthermore, investors should not assume that future performance of any specific index, security, investment product or strategy referenced in the Review, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s).  Past performances referenced in the Review may not be indicative of future results and may have been impacted by events and economic conditions that will not occur or prevail in the future.  Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices referenced in the Review are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Investing involves the risk of loss and investors should be prepared to bear potential losses, including the full amount invested.