4Q 2018 Market Observation Newsletter

We are pleased to provide you with our 4Q 2018 Market Observation, which shares relevant articles about the current market environment. We hope you enjoy this quarter's edition. As always, if you have questions regarding your account or your financial planning needs, please contact us.

Byron Wien: The Ten Surprises of 2019

Every January for more than 30 years, Byron Wien of Blackstone has published a commentary with ten “surprising” predictions for the year ahead. Wien defines his surprises as events that an average professional investor may deem unlikely, but which he thinks have a better than 50 percent probability of occurring. While he has hit on a large number of his surprises over the years, Wien’s “Ten Surprises” is less about forecasting and more about offering insight into stories that could shape the financial markets over the next 12 months, despite being off many investors’ radar. Before offering his prognostications for 2019, Wien begins his commentary by looking back at his predictions for 2018. This look back is equally as insightful as his look forward to the year that will be. Watch the video or read the 2019 predictions.

Waymo unveils self-driving taxi service in Arizona for paying customers

Google’s search bar has become an integral part of many of our daily routines, and while the company has become a household name, not everyone is familiar with Google’s “Other Bets.” The company’s Other Bets account for only 1% of the company’s revenue, but they include numerous ventures ranging from WiFi-connected thermostats and smoke detectors to biological research seeking to reverse the effects of aging. This article looks at a milestone recently hit by one of these Other Bets, Waymo – a self-driving car business. Last month, Waymo quietly launched the first paid autonomous-taxi service in Arizona, while General Motors, Uber, and others are not far behind.

This article gives a fascinating account of some of the advances with autonomous vehicles over the past few years, as well as some of the challenges that they still face; however, it also raises interesting questions that are not specific to Google or self-driving cars. Some of us had cell phones and bought books on Amazon 20 years ago, but few of us could have envisioned how smart phones and online shopping would change the way we communicate, travel and consume. Many other large companies have similar research endeavors working on “long shot” projects, not to mention the countless start-up companies working on new technologies and developments. Some of these start-ups and ideas will fail and fade way, while others may grow into sustainable business. It is impossible to say with certainly which will succeed and which won’t, but it is fascinating to ponder which ideas may permanently alter the way we interact with the world around us. Read more.

Experts Forecast Long-Term Stock and Bond Returns

We always recommend that investors shouldn’t build portfolios based on short-term forecasts or predictions. The direction of the stock market is notoriously difficult to predict over short-term periods of time; however, we can develop longer-term (five to ten years) expectations for asset class returns following a careful analysis of fundamentals and valuation. This article from the fund researcher Morningstar provides a compilation of long-term forecasts by many highly-respected investment firms. What stands out when reviewing these forecasts are the similarities and differences across firms. For example, almost each forecast described in the article expects non-U.S. equities to outperform U.S. equities over the next five to ten years, yet the range of those expectations vary widely. Understanding how different investors develop their expectations, and what drives the differences in those expectations, can help inform how we build portfolios. Read more