Gird your loins. We’re in for another rocky year in 2019.
That’s according to Goldman Sachs (NYSE: GS), who sees slowing economic growth and continued fits of volatility in the new year, which will make 2019 another crap year for risk-adjusted investment returns.
“Expect better but still low returns in 2019,” wrote Goldman’s strategists in a note on Monday. And while the decline in valuations across asset classes has improved a bit, “we see a weaker expected macro backdrop in 2019 as likely to limit return potential.”
This unpleasant forecast follows a rough year in the markets in 2018 where there has been only one winner for the year.
The market has been rattled by everything from the normalization of financial policy to the trade war and tariff threats to global trade and a slowdown in China. Then there’s the fear that corporate earnings growth has peaked. And then there’s bonds, which have been a terrible hedge for equities this year, screwing with the classic 60-40 portfolio strategy.
For 2019, the Goldman strategists recommend being overweight stocks and underweight on bonds, but also advise holding more cash. They also downgraded credit to underweight.
“We still see poor risk-adjusted returns in fixed income: we forecast negative total returns for bonds with more upward pressure on yields and credit spreads,” they wrote. “There may be less reason to be bearish” on bonds late next year as 10-year Treasuries “could reprice in the event of a more severe growth slowdown or deeper equity drawdown,” the team wrote.
2018 has been hard—especially in the last couple of months—but it hasn’t been completely catastrophic. However, 2018 will go down as one of the worst years for risk-adjusted returns outside of times of crisis in the last quarter century, the Goldman analysts noted.
Goldman also has an overweight call on commodities with “significant near term upside to oil” after its plunge over the last two months. They also like gold, and expect the dollar to weaken next year.