Q4 Market Update - AssetMark

Fourth Quarter 2019

Zoë Brunson, CFA

Market Review Q4 2019

Zoë Brunson, CFA

Senior Vice President, Investment Strategies

AssetMark, Inc.

  • December 2019 not only marked the end of a year, but also the end of a decade, and what a way to end the decade with US equities seeing a 31.5% return for 2019. US equities were up in 9 of the 10 years of the past decade and one of only two decades to not see a bear market and the first decade since 1850 that didn’t see a recession. This was a very different experience to the prior decade and, some would say, helped by starting from a low base in 2010.

    SP 500Source: Zephyr Style Advisor
  • Within US equities, it was all about technology, as the sector surged during the fourth quarter with a return of 14.4%, leading to a full year return of 50.3%. With a weight of over 20% in the index, technology contributed to a third of the return of the S&P 500. The bond proxy sectors of real estate and utilities had a tough final quarter but still saw returns above 20% for the full year. Energy was the only sector not to see a return above 20% for the year.
  • In the cap-weighted index of the S&P 500, a few stocks have outsized influence on returns. Heading into the decade Apple, Amazon, Microsoft and Google had a combined market cap of $716 billion. Coming out of the decade that group’s combined market cap rose to $4.1 trillion. Add to that Facebook, which rose from $80 billion in 2012 when it went public to $575 billion today, and these five companies comprise a little less than 17% of the index and their success (or failure) has large influence on the returns of the index.
  • Internationally, emerging markets finished the year strong with a final quarter return of 11.9%, outperforming US equities by 2.8% and developed international markets by 3.7%. For the full year though, emerging markets trailed the developed markets with a return of 18.9%, compared to 22.7% for the developed international markets. While for the full year there was little difference between the local currency and USD returns, for the quarter the weakness of the dollar improved the international returns for US investors.

    Returns as of December 31, 2019Source: Morningstar
  • The fixed income markets also saw strong positive returns for the year with the US bond market seeing a return of 8.7% for the year. Across the broad sectors, corporate credit was the market leader and despite seeing a 2.6% return in the final quarter, high yield was pipped at the post by investment grade credit by 20 basis points. Investment-grade credit returned 14.5% for the year with high yield at 14.3%.
  • A dramatic shift in the Federal Reserve’s policy helped lift longer term bonds during most of the year. Long-term Treasuries rallied for most of the year but saw their weakest return in the fourth quarter at -4.2% as rates gradually rose. For the full year, they still posted a strong return of 15.1%, outperforming short term Treasuries by 11.5%.
  • Emerging markets provided the best returns across the regional bond markets. With a return of 13.1% emerging market bonds had their best year since 2012 with every month being positive in 2019. For the fourth quarter international bonds outperformed US bonds by 0.5%, helped by the weakening dollar, but trailed the US markets for the year by 3.6%.
  • The key to portfolio returns will be the level of diversification held as 2019 was a year that saw the strongest gains across multiple asset classes since 2009 but there was a broad range of returns experienced across the markets. A 60/40 mix of US indices returned 22.4% for the year, while a globally focused mix of indices returned 17.8%

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S&P 500 - An unmanaged index that is generally considered representative of the US equity market, consisting of 500 leading companies in leading industries of the US economy (typically large-cap companies) representing approximately 75% of the investable US equity market.
MSCI EAFE - A free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of countries considered to represent developed markets, excluding the US and Canada.
MSCI Emerging Markets - A free float-adjusted, market capitalization index that is designed to measure the equity market performance of countries considered to represent emerging markets.
S&P 500 Sector Information Technology - Primarily composed of companies involved in technology hardware, storage, and peripherals; software; communications equipment; semiconductors and semiconductor equipment; internet software and services; IT services; electronic equipment, instruments and components
Bloomberg Barclays Global Aggregate ex USD – The index is a flagship hard currency Emerging Markets debt benchmark that includes fixed and floating-rate US dollar-denominated debt issued from sovereign, quasi-sovereign, and corporate EM issuers. Country eligibility and classification as Emerging Markets is rules-based and reviewed annually using World Bank income group and International Monetary Fund (IMF) country classification.
Bloomberg Barclays US Corporate High Yield – The index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below. The index excludes emerging market debt.
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C20-15411 | 01/2020 | EXP 01/31/2021

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