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After most investors in passive, balanced portfolios ended 2019 with significant returns in both their equity and fixed-income allocations, they may be due for a return to more normal return patterns in 2020.
But 2020 will probably be trickier, said Jeffery Elswick, director of fixed income at Frost Investment Advisors.
“Our base forecast for 2020 is looking like a year of around 2% returns,” said Elswick. “Maybe 2.5%, give or take, but much lower than the returns of 2019. In 2019, everything in the U.S. bond market has essentially produced positive returns except one area -- high-yield credit in cyclical industries. Pretty much everything else has been up -- even the loan market.
“We don’t think that’s going to happen again this year.”
Elswick said that any further positive momentum on trade agreements could force yields upward and buoy riskier assets like equities, which would be a negative for rate-focused bond investors in Treasurys and other investment-grade sectors of fixed income.
Khanna and Elswick also expect the Fed to be on hold throughout 2020, barring any surprise policy moves.
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