Stock Markets

Stocks were up nicely this quarter except for Real Estate Investment Trusts (REIT) which is quite a turnaround from last year’s fourth quarter. The one-year numbers including REITs, are well above what it is reasonable to expect over the long run but are necessary from time to time to make up for the down markets we will endure going forward. Overall it has been a good year for stocks.

Domestic markets, especially large cap stocks (S&P 500), have outpaced both international and emerging markets over longer periods. Because many consider the S&P 500 as the “stock” market, looking backward makes it easy to focus only on allocations to this index. Investment decisions are made by looking ahead where global diversification is expected to payoff.

Bond Markets

A yield is what you earn by holding a bond to its maturity. Changes in yields drive returns – falling yields are positive; rising yields negative. The longer a bond’s maturity the greater the impact a given change will have on prices and returns.

Financial Common Sense

Note, to the graph above that bond yields at the longer end ticked up but fell at the shorter end producing negative returns for longer maturing bonds and positive returns for short-term bonds. This twisting of the yield curve brought the pattern of yields across several maturities although low by historical standards back to its more “normal” upward sloping shape.


There is a lot of noise about a coming recession. While the numbers still look reasonable, the tools to respond may not be as potent this time around. The hue and cry for the Fed to reduce interest rates notwithstanding, with rates at historically low levels and massive Treasury securities on the Fed’s balance sheet there is not much room for monetary policy to make a difference. As far as fiscal policy is concerned, the Government is already running substantial deficits due to the recent tax cut. The positive impact may be behind us and with today’s political dysfunction the opportunity to do more with fiscal policy may not be available. With the large tax cuts in place and an accommodative Fed, we have enjoyed a nice ten- years that may be difficult to repeat.

A Twenty-Year Perspective

It’s been a good year, but let’s put it in perspective by looking at some history. The past twenty years produced an average 7% return from global equity markets amid significant ups and downs. Probably a reasonable long-term expectation. This year’s 24% return was well-above this average. Over this period, we had to endure some significant down years, including a three-year run of double-digit losses at the beginning. Seeking to avoid the pain of a fourth loss would mean missing the dramatic up market of the following year. Then after a few years of up markets, we went through the gut-wrenching drop of over 40% in 2008. This year’s results are not necessarily extraordinary in view of the ups and downs of the past twenty years – it’s how equity markets work. Seeking to avoid this variability is apt to mean missing out on years like this one. The past twenty years is reasonably representative of how equity markets behave over extended periods. Don’t pay any attention to the myriad of predictions that are typical for this time of year–they’re usually wrong. Focus instead on the appropriate tolerance for variability whilst expecting commensurate returns over the long run.

2018 was a less pleasant time to be an investor. In the four trading days leading up to last Christmas, the market dropped 7.7%, capping off what was a nerve-racking year for investors. But when we delved deeper, we found that 2018’s volatility wasn’t that unusual.

One measure of market volatility is looking at the number of days in which the market moves more than 2% in either direction. Since 1928, the stock market has annually averaged 17 such “volatile days” and over the last 30 years, the average stands at 16.

In 2018 we had 20 volatile days, making it more volatile than usual but not horribly so. One of the reasons it felt so volatile was because prior years lacked volatility, including 0 volatile days in 2017. Overall, 2019 was a pleasant year to invest. The market had a smooth ride with U.S. large caps up around 30% at the time of this writing, making 2019 the 17th best year since 1928.

This year we only saw 7 days of high volatility and two of those had happened by January 4 . In August we witnessed three such

days, all negative movements, as investors began to fret about an upcoming recession. However, the slow-down has not materialized and the market rallied to close out the year.

It pays to be invested and part of the reason long-term returns are so good is because it’s not easy to stomach market losses when things are bad. Staying grounded is key; when we have years like 2018 it’s important to remember the years like 2019 and vice versa.

Unfortunately, bad times will come, and when they do, we can take comfort remembering we’ve survived worse. In 1932, there were 133 volatile days, more than half of the year’s 250 trading days. The stock market dropped 43%, nominal GDP declined 23%, the dollar deflated 10%, and unemployment stood at 24%… but hey, the U.S. cleaned up at the Los Angeles Summer Olympics (in fairness, the number of countries participating declined 20% from 1928 to 1932 due to cost).

So, what’s the lesson here? Volatility is normal and we can’t predict its arrival. 2019 was a low volatility year with great returns while 2018 was the opposite. However, being invested through both has made Investors better off. Stay invested, diversify, and rebalance when volatility strikes (buy low, sell high). This isn’t always easy to do, but it’s one of the main reasons we are here as your financial partner.

You may spot the good news in the press sometime soon, but we wanted you to be among the first to hear it, straight from us! Please join us in congratulating Patrick Rohe, CFP® as we name him Chief Executive Officer of Rockbridge Investment Management.

Why the change? It’s an opportunity to recognize Patrick for the contributions he’s already made, as well as for his continued leadership in attracting and mentoring talented new team members.

More than that, you deserve no less from us. Through the decades, our vision has been to help Central New York families enjoy their wealth across generations. For that, we too must evolve and enhance our client care and our participation in the community.

To that end, Patrick will continue to engage directly with clients in his role as a senior financial advisor. As CEO, he’ll also focus on spreading the word about our services and positioning us for growth. Firm founders Craig Buckhout and Anthony Farella will continue as senior advisors and will join Patrick in providing strategic leadership as part of the firm’s management committee.

Had we searched the country over, we could not have found anyone more ideal than Patrick for this newly created position. First, as many of you know, his roots are firmly planted here in Syracuse. Having grown up on his family’s dairy farm just outside of town, he still enjoys spending some of his free time lending a hand at the homestead.

Patrick also has been instrumental in shaping the character of our firm. As he says, “We still want to grow our business here at Rockbridge, but with a deliberate eye toward helping more families and attracting new team members from an incredible pool of local talent. Through thoughtful growth, we look forward to striking that balance for our firm, our growing team, and our community. ”

Please be in touch with us with your questions or comments … and congratulations to Patrick!