Our view on 2020: Two speed investment management

by: , Multi-Asset Solutions team, New York Life Investments

The Multi-Asset Solutions team’s full 2020 Outlook can be accessed here.

2020 is poised to be highly taxing on investor nerves.

We believe, and our models confirm, that the U.S. economy’s maddening muddle will persist. The labor market is strong, consumers are spending, and financial conditions are favorable. However, cracks in the expansion’s foundation became more apparent in 2019. Profit margins have clearly peaked, earnings are under pressure, and risks are skewed to the downside.

Valuations confound the investment environment further. A typical economic slowdown would favor removing risk exposure, including in equities. While high absolute valuations would support that tactic, relative valuations suggest that risk may still be better rewarded in equities than in corporate credit or government bonds.

Structural economic shifts obscure visibility further still. Lower potential growth rates are resulting in lower inflation and yields, with important implications for portfolio management. Moving forward, valuations may be higher than has been historically typical, but average annual returns are likely to be lower. Traditional approaches towards asset allocation and portfolio diversification may no longer suit.

In response, we are shifting further toward a two-speed investment management thesis. Capital preservation is our strategic priority as the economic expansion fades. However, we acknowledge that liquidity conditions and sentiment drive short-term opportunities. As we sell into a market rising to all-time highs, we are building flexibility to take advantage of tactical opportunities as they arise.

Based on our views, we believe the following takeaways are key for investors:

Our full 2020 Market Outlook includes evidence for a slowing economic environment, concrete investor takeaways, and a discussion on what “lower for longer” inflation and interest rates mean for investors.

In the coming weeks, we will share our favorite aspects of those themes on this blog. Stay tuned!

This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.

The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.

This material contains general information only and does not take into account an individual’s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.

“New York Life Investments” is both a service mark, and the common trade name, of the investment advisors affiliated with New York Life Insurance Company.

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Multi-Asset Solutions team

Multi-Asset Solutions team, New York Life Investments

Multi-Asset Solutions (MAS) is New York Life investments’ specialist in multi-asset investing.The team offers multi asset strategies, market intelligence, and customized solutions to its strategic partners. Managed assets include MainStay funds, strategic partnerships and customized solutions with third parties. Investment services include market insights, risk analysis, and financial education. Strategic partnerships are designed to meet bespoke investment objectives, such as income generation or inflation protection, through holistic solutions.

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