The Week Ahead – A Tale of Two Decades

Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way—in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.”
– A Tale of Two Cities by Charles Dickens

One of the most famous openings ever for a novel and one that also accurately describes the investment environment in 2019 and for this decade! It has been the best of times for domestic equity markets which hit new record highs while international/ emerging market equities languished. Investors got more access to information and data with the advent of technology which allowed them to be both wise and foolish with their decisions. Zombie companies have been allowed to stumble along as access to capital remains easy and all the while disruption has occurred in almost every single sector: fracking within energy, the Amazon effect within retail, and streaming video services becoming the way of digesting content . It’s hard to fathom all the progress and innovation that has occurred during this decade. If domestic equity markets hold their current levels, the S&P 500 will have annualized about a 14% return, even as the scars of the Great Financial Recession weighed on investors' psyches and record high cash balances sat on the sidelines. Conversely, if emerging market equities hold around their current levels to close the year, they will have annualized about a 4% return. A pretty staggering difference … until you look back at the decade of 2000–2009. The S&P 500 had an annualized return of -1.0% for that decade. Two bear markets in one decade will definitely do that. What did emerging market equities do for that decade? Up 10.1% per year on average! A tale of two decades for those equity markets.

In the week ahead, investors will once again be looking for signs of inflation as well as carefully monitoring Fed Chair Jerome Powell’s semi-annual report to Congress on the current health of the U.S. economy. Meanwhile, as trade optimism continues, a reminder of how binary the current market regime is: in their most recent member survey, the National Association for Business Economic Outlook asked, “What is the greatest UPSIDE risk to the U.S. economy through 2020, considering both probability of occurrence and potential impact?” The leading answer: trade policy. They were then asked, “What is the greatest DOWNSIDE risk to the U.S. economy through 2020, considering both probability of occurrence and potential impact?” The leading answer: trade policy!

Data deck for November 9–November 15: