·       From an aggregated lens, the U.S. and the world have recovered from the Global Financial Crisis (GFC). The global labor economy is at its best in a generation; private wealth or net worth has exceeded pre-crisis highs; and the stock markets have seen a decade of returns that were not imaginable at the end of the Lost decade. However, below the surface, there is significant unevenness. The super dependence on monetary policies globally is a sign that we are not back to the old normal. With technological disruption (the Fourth Industrial Revolution) and aging demographics (low inflation, low productivity, low growth), the New normal is the normal – a 2-2-2 world of 2% growth, 2% inflation and 2% bond yield where savers continue to subsidize borrowers and central banks will never be back to the good old days again.

·       2019 was a great year for risk assets (S&P500 returned 31.49%), and bonds (core bonds returned 8.72%) did very well too.  This type of positive correlation is unusual. Traditionally, when in a risk-on market (equities do well), core fixed income does poorly. For 2020, we expect equities (U.S. and EM) to continue to do well relative to core fixed income where return would likely be limited to the bond yield.

·       Being cautious by improving portfolio quality and looking for additional diversifiers (from stocks and bonds) will cushion the portfolio from unexpected equity drawdowns.

·       There is no recession as long as the consumer holds up.  We expect the labor market to continue to be robust with gradual improvement in real wages and to provide the support for the 11th year in economic expansion.

·       GDP for 2020 is not going to be a breakout year. Thus, it will likely be in the 1.9% to 2.2% range, and core inflation will continue to stay under the Federal Reserve’s 2% target.  It is not likely that the Fed will cut interest rates in the next 12-months, unless there is an unexpected shock to the economy, while ECB, BOJ and PBOC will continue their dovish monetary policy path.

·       Being an election year, we expect the market to increase in volatility as we get into the final campaign season beginning in the summer.  If we can get a decent return in the first 3 to 4 months in 2020, de-risking may be prudent.

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