The Story Behind Markets’ Final Scores

Strong market performance has had investors asking: What’s the relationship between headlines and market returns? Here’s our brief answer.

01.27.2020 - Ian Riach, Chief Investment Officer


The Story Behind Markets’ Final Scores

By Vincent Tonietto


Skate to where the puck is going, not where it has been. - Wayne Gretzky


Given the countless negative headlines that dominated the news in 2019, one could easily think the stock market would struggle to close the decade in positive territory. However, as of writing this, the S&P 500 Index climbed more than 24% during the year.[1]   


What’s the relationship between such headlines and market returns? It’s worth recalling that financial markets are leading indicators, not a reflection, of the current environment. It’s also important to note that it wasn’t necessarily rising earnings that drove share prices higher in 2019. It was expanding multiples. Said differently, a listed company could have reported the exact same earnings in 2019 versus 2018, but its share price could have increased by 29%.[2]


How? Share buybacks—where a company purchases its shares, leaves fewer in circulation and puts upward pressure on share prices—played a significant role in 2019 market performance. At first glance, a less informed investor could see the rising stock prices and assume a company’s fundamental results are improving while, in fact, they aren’t. Detailed analysis of corporate results is key to differentiating a good investment from a bad one. We focus on variables that provide better visibility, which helps us select quality companies with a strong management team and track record. 


Understandably, clients have been asking what to expect from 2020, given the positive results of 2019. Are markets getting ahead of themselves? As the chart below shows—from a pure return perspective—there’s no evidence that a strong year is a sure precursor to stronger or weaker returns in the next year. We do know that bottom-up stock selection and careful scrutiny of a company’s fundamentals such as quality, value and momentum will be critical in the coming year.


Thus, whatever noise the 2020 headlines make, our portfolio will be well positioned to navigate the environment.


Performance One Year Doesn't Impact the Next - visualization


This graph shows there’s no correlation between current and future performance. Put differently, current year performance means absolutely nothing in terms of predicting next year’s performance.


 Source: Bespoke Investment Group, Chart of the Day as at December 16, 2019.



1 FactSet: Price return in CDN$ as at December 20, 2019.

2 FactSet: S&P 500 Index average P/E as at December 20, 2019.


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