What a difference a year makes! One year ago I was reading Globe and Mail articles with titles such as ‘The year no investing strategy worked’ (Jan 3, 2019) and ‘The bad news is nobody made money in 2018’ (Dec 27, 2018). One year ago, the Federal Reserve interest rate had moved up 2%, the China/U.S. trade war had begun, Brexit was a big concern, and there was plenty of talk about a possible recession. But since then, the U.S. Fed has cut rates three times, the U.K. has elected a majority government, Trump has been cutting tariffs, and we are still not in a recession. So the end result for investors is that 2019 was The Year of the Upside (Globe and Mail, Nov 28, 2019). Every major asset class in Canada has participated in an unusual synchronized rise. I do not believe this has happened previously in the past 35 years.

So what now? Well at RBC Global Asset Management, the 12-month horizon remains positive and we believe stocks will outperform bonds. Economic growth has decelerated yet is now showing signs of stabilizing. From what I have read, many other well respected financial institutions have similar positive outlooks but almost nobody is predicting a repeat of 2019.

I have a ‘cautiously positive’ outlook, while also recommending to keep things in perspective. Please keep the following in mind:

• 2019 was a very good year. If by the end of 2020 we experienced real returns that are in line with historical averages, then that is still quite good since we would have both maintained and added to last year’s gains.
• Let’s expect market dips. Since 1950, the U.S. S&P 500 index has had an annual compound rate of return of over 7.5%, yet on average has suffered two 5% pullbacks in any calendar year or one 10% correction every couple of years (source: Manulife, 20 Charts for 2020). The last correction we had was in Q4 2018.