Rockier Road Ahead

Welcome to a new year!


There was one surprise since our last update, “Distracted Drivers.” We managed to get further on the China Trade deal than I anticipated. However, it remains to be seen how or if all the details will be acted upon. When this news was combined with strong holiday retail sales, the market moved steadily higher into the end of 2019. The danger in such a strong year is overconfidence. We believe the market will continue to move higher in 2020 although we doubt that we will see a repeat of 2019’s stellar performance. 


  • The United States trade deal with the world
  • And you thought your rates were low!
  • Our most interesting observations and how they may impact investors in 2020
  • Conclusion

The United States Trade Deal with the world:

The trade deal with China has taken center stage during 2019 while other trade deals around the world have been signed and are in full operation, effectively putting the United States in a better position for global trade than it has been since WWII. The markets overall continue to trade from day to day based largely on the latest news about the trade war with China. The pain has been real on both sides. A more patient China has born the brunt of the pain overall, but the United States constituency is not nearly as patient. The Chinese culture looks at 100-year plans while the U.S. culture looks at annual or even quarterly plans. To combat this as best as possible Mr. Trump started his battle earlier in his term than any other president has ever dared, yet still, he is up against his election year giving China significant leverage. We look for China to continue to talk much but take little actual action. I hope I am wrong on this one.
And you thought your rates were low!
Well, you could be in any number of country’s where you actually pay bond issuers to hold your money. Five countries have negative interest rates including Japan, Sweden, Denmark, Switzerland, the ECB, and Germany has issued zero rate bonds. While this is good for borrowers and arguably should stimulate economic activity by encouraging spending, it does little for those of us trying to save and generate income in retirement. Bonds will likely still be less volatile than many other investments, continuing to provide ballast to portfolios. However, they will likely not provide the same protection that they have in the past since the lower the coupon on the bond the more volatile the price of that bond will be.
Further, the yields being lower may limit the amount of appreciation and will reduce the income potential of bonds in portfolios.  What is to become of the traditional 60/40 portfolio where 60% of the portfolio is held in equities and 40% of the portfolio is held in fixed income securities?  Many advisors continue to recommend such a strategy and we fear they may be sorely disappointed at some point. Bonds still have a place in most portfolios but understanding their limitations has never been more important. At Guardian Rock, we specialize in risk mitigation and management which has changed significantly over the years. 
Our most interesting observations we and how they may impact investors in 2020.

Bull markets grow in negativity, flourish in complacency and die after irrational exuberance. This year has been interesting, to say the least with only one down month for the S&P 500 despite many of the news pundits being negative on the market for much of the year. We have seen a persistent negative yield curve that typically points to an impending recession and yet we have not seen any hard evidence that this is soon to be in the offing. The summer doldrums brought much concern about the impending end to the bull market and we have seen some of the economic indicators falter a bit. Still, no major market correction and as news of the China trade war has become more positive, we find ourselves with a strong year overall for equities. Oddly enough the housing sector that caused significant problems for us in 2007 is one of the sectors helping us maintain positive economic activity. New homes are being built, the pace of home buying remains positive and foreclosure rates have fallen by 26% from last year to a 20-year low. Lower rates add fuel to this fire and the Fed seems content to hold rates where they are for quite some time. 

The biggest danger with the market we have experienced during 2019 is that it can bring with it overconfidence especially for those investors who were not active in the market during other market downturns. Given how long this bull market has run there are quite a few of those folks participating in the market today. For those of us benefiting from a few more gray hairs and some humbling lessons learned we remain cautiously optimistic. We believe it is unlikely we will see another year of 30% or more growth and we expect more volatility in the market during 2020. We would not be surprised to see a 10% or more correction at some point during the year which may begin to bring attention to the idea that bond holdings are not likely to provide as much downside protection as they once did. We do expect the market to continue to move higher by the end of the year so for those long-term investors who can stomach some rockier roads along the way we believe the reward will be there in the end.

Phone: (312) 372-5000

John Browning, MBA and CSA®
CEO, Principal
Mr. Browning serves as the Chief Executive Officer for Guardian Rock LLC.  In addition to providing oversight to the activities of the entire firm, Mr. Browning also leads the investment committee and is directly involved in client interaction and portfolio decisions impacting specifically customized portfolios. 

Mr. Browning is a graduate of Cedarville University in Ohio and later obtained his MBA from Northern IL University.  John is also a Certified Senior Advisor (CSA®). John holds multiple securities licenses including Series 6, 7, 63, 65, 24 among others. John brings over 30 years of Wall Street experience an analytical, economics and portfolio management background along with many years of leadership and strategy experience. John has served in various executive-level roles in the financial industry at large Wall Street firms including Morgan Stanley, Invesco, Guggenheim, and Nuveen where he obtained extensive experience managing billions in fixed income and equity.