A Rarity and Confounding …

Deutsche Bank has done a study of asset class performance during a year dating back to 1901. Stocks, bonds, copper, burlap, crude oil, iron ore as well as many other assets are part of the study. The results were featured in a Wall Street Journal article on November 26, 2018 and the chart included in the article is found below.

Through mid-November, 90% of the 70 asset classes tracked had posted negative total returns in dollar terms. In 1920, the previous high of 84% of 37 asset classes being negative was set. Last year only 1% of asset classes were down. Obviously 2018 is not yet finished and the year could end well with a “Santa Claus” rally. But this broad-based asset underperformance is confounding during a time when there is no recession in sight in any significant economy in the world. Consumer sentiment has been/is strong as demonstrated by the record setting start to the holiday shopping season. Further, asset valuations (with the prominent exception of cryptocurrencies) are not “stretched” in the low inflation, low interest rate environment we have globally. Rallies in markets this year have been “snuffed out” because of uncertainty, largely political, which have unnerved investors. Moods have swung from dour to ebullient and back to dour. Luckily, corporate performance has exceeded analysts’ expectations throughout the year – meaning that equities around the world have become relatively less expensive than they were at the start of 2018. Fundamentals clearly suggest that assets are cheap- we agree.