What’s in store for 2020 and beyond
October 22, 2020
The stock market’s recent performance was strong, but also reflects a disconnect with the economy
Stock markets defied continued uncertainty about the pandemic and the economy to reach all-time highs in the 3rd Quarter of 2020. By the end of August, the S&P 500® Index had recovered completely from the market’s swift downdraft in March, gaining more than 35% since the low and marking the best five-month return since 1938 according to Bespoke Investment Group.
While the recent strong performance is good reason to cheer, it does reflect a worrisome disconnect from the fundamentals. Elevated stock prices currently reflect higher investor expectations for a robust economic rebound and a dramatic shift from pessimism to optimism. No matter which equity investors are polled, from global fund managers to individual investors, sentiment has swung decisively from fear to greed.
As we approach the final quarter of a turbulent year, investors are faced with tough asset allocation decisions; the market rebound has extended equity valuations and made stocks generally expensive, but historically low yields in the bond market do not offer a compelling alternative. A traditional 60%-equity/40%-bond portfolio has delivered attractive and consistent returns over the last decade, but at current market levels this allocation may need to shift in the years to come to provide adequate returns for investors’ long-term goals.
Download the entire 4th quarter outlook here.
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