All markets did well on an absolute basis in 2019

2019 was an amazing turn-around story when we compare expectations at the beginning of the year versus the results at the end of the year. The over 30% benchmark returns for equities is the best since 2013. Any measure for a 60/40 stock/bond blend would have produced double digit returns for the year. 

The only area which showed significant return underperformance was international stocks, but even here there were high absolute returns. 

An interesting alternative view on performance is looking at long-only S&P factor style returns versus the S&P 500 benchmark. Quality was the only factor that did better than the benchmark, and the average underperformance was less than 300 bps. The only factor which may have hurt investors was small cap although it still generated over 20% returns.  

Sector performance was disperse with information technology over 50% and energy only generating just under 12%.  

A comparison of past years suggests that this type of performance is not likely for 2020. Expectations for the year are modest and there is less likely to be any large macro surprises that will push markets higher. While recession expectations have been pushed further into the future, the combination of high valuations and still modest economic growth places greater weight on downside risks.