Market Commentary Q4 2023

A Global Perspective

Given the yo-yo returns we have seen over the past couple of years (U.S. large-cap stocks -18% in 2022/+26% in 2023, foreign developed stocks -14% in 2022/+19% in 2023, U.S. core bonds -13% in 2022/+6% in 2023, etc.), our clients can be forgiven for any resulting dizziness. History shows, however, that global investment returns can change dramatically from year to year, especially in the equity markets and by country. As our friends at Dimensional Fund Advisors (DFA) point out, “Investment opportunities exist all around the globe, but the randomness of global stock returns makes it exceedingly difficult to figure out which markets are likely to be outperformers.” Put another way, it is very challenging to forecast which country’s stock market will outperform by looking at past returns. Exhibit 1 from DFA shows the performance of 22 developed markets since 2003. (Each color represents a different country, and each column is sorted top down, from the highest-performing country to the lowest.) As you can see, over the past 20 years there has been no consistent “leader.” New Zealand posted the highest developed markets return in 2019—but the lowest in 2021. The U.S. ranked in the top five for annualized returns over the entire 20 years but finished first in the country rankings just once over that period. In nine calendar years, it was in the lower half of performers. The good news is our clients don’t have to worry about which countries will deliver the best returns in the future. Our client portfolios are allocated across the globe in bonds and stocks to potentially capture higher returns where they appear. Outperformance in one market can help offset lower returns elsewhere, helping to provide more reliable outcomes over time.

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Exhibit 1 disclosures: In USD. MSCI country indices (net dividends) for each country listed. Does not include Israel, which MSCI classified as an emerging market prior to May 2010. MSCI data © MSCI 2023, all rights reserved. Past performance is not a guarantee of future results.

The foregoing content reflects the opinions of Brown McLeod, Inc. and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. All tax, legal, investment and other strategies should be discussed with the appropriate professional prior to implementation.

Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.

Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.

Posted in Market Commentary