The positive trend in investment markets continued in the 4th quarter, capping off a strong year overall for markets. All NERT model allocation funds were positive on the year led by the equity funds while the fixed income, real estate and commodity funds also provided solid returns.
So, what were the major catalysts driving the great year in the markets in 2019? The primary driver was an accommodative monetary policy from the Federal Reserve in the United States and accommodative monetary policies from other Central Banks globally. Over the course of 2019, the Federal Reserve cut the Fed Funds rate by 25 basis points three times for a total of 75 basis points. This was a complete reversal from 2018 when the Federal Reserve raised rates four times for a total of 100 basis points. This led to lower yields across the treasury curve which provided a tailwind for both fixed income and equity markets.
The second major catalyst was progress in global trade. The market expectation as 2019 came to a close was a deal between the US and China would occur in 2020. This market expectation was met this week as phase one of the deal was signed by both the US and China. The deal between the two countries will have Beijing purchase an additional $200 billion of goods and services from the US over the next two years. In exchange the US will reduce tariffs on $120 billion in Chinese products from 15% to 7.5%. The deal also loosens up requirements for US banks wanting to operate in China and provides better protection to American companies against theft of intellectual property.
Heading into 2020, equity markets particularly in the United States will be reliant on company earnings growth to continue the bull market. Historically, markets have performed favorably in the year following 20%+ increases in the S&P 500. There are risks to this trend including a US presidential election, equity valuations at elevated levels, and turmoil in the middle east.
NERT Model Allocation – Choices for every investor
The NERT model allocations are designed to help participants build diversified allocations to capture the major market sectors and a variety of management styles. They are offered to aid typical participant needs for diversified, risk-adjusted allocations. NERT rebalances allocations on a regular basis attempting to keep a consistent risk and asset posture. The allocations will maintain some exposure even in underperforming classes. Diversification, by definition, means not all assets can have positive performance every period. The NERT model allocations are designed to allow any investor to participate in proven ways to reduce risk and improve returns over longer periods.
4th QTR 1 YR 3YRS 5YRS
Stable Income 1.7% 8.3% 4.3% 3.4%
Conservative Income 2.9% 12.8% 6.3% 4.6%
Traditional Pension 5.1% 18.6% 9.2% 6.6%
Equity Oriented 6.3% 21.3% 10.5% 7.4%
Andrew Casteel, CIO, CFP
Acorn Financial Advisory Services, Inc.