Market Commentary & Forecast

As our annus horribilis draws to a close, the craving is palpable for an annus mirabilis next year to make up for it. Many prospects are indeed bright: the record-breaking development and initial distribution of coronavirus vaccines; a new aid package ultimately signed by the outgoing American president; the conventional manner of his successor. All promise that a return to some sort of “normal” is at hand. We have paid a heavy price for such a return, in both human and financial terms. Yet much of what the pandemic changed will not revert so simply. In fact, some long-term shifts in how we live and work will likely accelerate further. And even as the rhythms of our personal and business dealings revive, certain structural headwinds to the U.S. economy will persist—and with them, a degree of secular stagnation.

The global economy remains marked by uncertainty over the trajectory of the global pandemic, yet the power of the virus to shock has diminished substantially. Even as U.S. deaths passed the grim milestone of 200,000, many schools resumed some fashion of in-person instruction; businesses are chomping at the bit to reopen. Markets have been buoyed by rock-bottom interest rates, better-than-expected corporate earnings, and meaningful rebounds in housing, employment and other economic data. For students of human resilience and market optimism, it has been a dizzying year. For stewards of client capital, enormous challenges remain as we survey a landscape of elevated valuations across major asset classes, political disarray, and persistent questions about when and how we will tame this virus.

When I penned our preceding Outlook just three months ago, the equity market had collapsed so rapidly as to make the multi-quarter pace of the financial crisis seem almost leisurely. Despite many differences between the two periods, one thing is the same: Now as then, those who stuck to a disciplined approach to asset allocation—including rebalancing where appropriate—were able to incrementally benefit from this moment of extreme market dislocation. The team at Clear Harbor believes strongly that discipline is the surest defense against many blunders in wealth management. We are grateful to our clients for trusting our process, and for working with us to ensure that our strategies for achieving your short- and long-term objectives remain aligned with your own tolerance for risk.

As we embark upon the second quarter of 2020, the entire Clear Harbor team hopes this commentary finds you and your family both healthy and safe. We also reflect on those who are working on the front lines of this COVID-19 crisis, particularly the healthcare professionals who put themselves at risk so that they can tend to the seriously ill, which often requires painful sequestration from their own loved ones. Indeed, as we all wade through this moment of historic uncertainty, I suspect we are all reminded of what is most dear and precious in our lives. We mourn with those who are suffering so much during this moment, even as we persist in our commitment as stewards of your hard-earned capital.

Ten years ago, the world wondered what would follow the extraordinary fiscal and monetary measures taken during the financial crisis. Would major economies transition to sustained flight under their own power, or crash back into severe recession? Ultimately, concerns about a relapse subsided. However, some crisis-era policies have become the norm—and urgent questions of political and economic realignment have been at the fore, at home and abroad, ever since.

As we race toward the final quarter of 2019, markets are defying widespread narratives of decelerating global growth and accelerating geopolitical uncertainty as much as they have at any time over the last decade. Equity benchmarks for U.S. and global developed markets are better by 10-20% so far this year, while emerging markets have notched an average 5.5%.