I want to wish everyone a happy 2020! The last decade was an amazing one for investors. The decade began with fears mounting about the financial crisis and a deep recession, but ended with the longest economic expansion in U.S. history and some of the best returns ever for stocks and many risk assets. For most of the decade, talk circulated about low asset returns, deflation and concerns over the amount of debt, but central bank policy, the printing of money and low/negative interest rates won out in the end to move prices higher. So where does that leave us as we start a new decade?
I expect this new decade to begin as the last one ended, with asset valuations moving higher and interest rates remaining relatively stable domestically and globally. Market rallies and economic expansions don’t just end because of predetermined timing or specific valuation levels. Predicting market tops and bottoms is a difficult exercise because valuations can remain stretched far longer than anyone expects. Cycles end because of either a policy mistake, a quick sentiment change or an extreme overvaluation of an asset class.
Over the course of the next decade, however, I expect the paradigm will change and financial asset returns will be more muted, with most asset classes returning less than 5%. The impact of the unwinding of negative interest rate monetary policy, shifting demographics and the level of debt will ultimately keep a ceiling on asset returns. Just as last decade had many unexpected twists and turns, the new decade will bring many surprises. Stay focused on long-term relative value and sector rotation to generate excess returns.
This blog post is for informational use only. The views expressed are those of the author(s), and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
Any statements about financial and company performance of The Penn Mutual Life Insurance Company or its insurance subsidiaries (each, “Client”) made by the author is provided with a written consent from the Client. Penn Mutual Asset Management is a wholly owned subsidiary of The Penn Mutual Life Insurance Company.
Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice. The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete. Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements. Actual results may differ significantly. Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.
Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. There is no representation or warranty as to the accuracy of the information and Penn Mutual Asset Management shall have no liability for decisions based upon such information.
High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.
All trademarks are the property of their respective owners. This material may not be reproduced in whole or in part in any form, or referred to in any other publication, without express written permission.