(Bloomberg) — In a bull market almost everyone thought was living on borrowed time, the S&P 500 is poised to post one of its best years in two decades. Extraordinary returns like those are complicating the lives of people paid to predict what happens next.

Stretches like this are only raising the stakes. Despite falling the most in almost two months on Friday, the S&P 500 has now climbed for seven out of the last eight weeks, with this month’s 3.4% gain tied for the best November return in a decade.

A vanilla 60/40 portfolio — 60% stocks, 40% bonds — is now on course for its best year since 2009 — a feat that few see being repeated anytime soon.

As December beckons, sell-side prognosticators sound anxious, though not quite bearish. Societe Generale SA, Morgan Stanley and Goldman Sachs Group Inc. are among those telling clients that beloved strategies — America First trades, quality shares, selling volatility — offer fewer rewards in 2020. Growth and valuation risk is the mantra.

Add the struggle to reach a phase-one U.S.-China trade deal, and investors are in no mood to revel in this year’s double-digit returns.

“We have been bombarded by these outlooks for 2020,” said Alberto Tocchio, chief investment officer at Colombo Wealth SA in Lugano, Switzerland. “But I wouldn’t be so sure that growth will expand in any considerable way if a trade deal is not signed.”

Colombo Wealth has been turning more defensive over the past month, reducing positions in U.S. equities and instead switching into European value stocks and U.K. domestic shares.

Uniting a host of Wall Street analysts is the view that the U.S. isn’t on the cusp of recession, global manufacturing can recover from its woes and easier monetary policies can deliver a boost to growth. Low interest rates are bidding up bond-proxies while haven demand is juicing quality stocks.

Receding fears of economic reversals are creating a perfect climate for the active manager, in theory. Correlation among the top 50 U.S. shares has been falling of late. It’s a sign there’s “little if any macro risk anxiety, with fund managers seeming to be increasingly comfortable with buying idiosyncratic investment stories,” Citigroup Inc. strategists led by Tobias Levkovich wrote in note.

Expectations for lockstep stock movements have also been trending down since August, according to a measure derived from options prices.

“We’re thinking about what’s next,” said Brian Jacobsen, multi-asset strategist at Wells Fargo Asset Management. “At what point are we going to start getting worried that there’s too much of a disconnect between somewhat weak fundamentals and this positive and strong optimism.”

One quantum of solace cited by some bulls this year remains on point: Positioning in cash equities remains cautious, belying the 20% gain for the MSCI All-Country World Index and the 25% rise in the S&P 500. (For perspective, the American gauge rose 30% in 2013, 26% in 2003 and 27% in 1998).

Global equity funds have posted $188 billion in outflows this year through Wednesday. Nearly four-fifths of rich investors recently surveyed by UBS Global Wealth Management expect volatility to increase and 55% think there will be a significant market sell-off before the end of 2020.

Asset managers including UBS Global Wealth Management’s Maximilian Kunkel are more sanguine.

“We don’t expect a sudden big drop in markets,” Kunkel, the firm’s chief investment officer for Germany,” said in an interview. “There’s still a lot of room to come back into equities after the massive outflows we’ve seen, particularly if investors start to see that growth is more durable than expected.”

If that’s the case, a burning question for 2020 is whether the buy-side will finally share the sell-side’s love for European equities. The likes of JPMorgan Chase & Co., Credit Suisse Group AG and Morgan Stanley strategists project the latter will outperform U.S. stocks. And with the S&P 500 surging to new highs this week, its valuation on a forward price-to-earnings basis swelled to the highest level since February 2018.

But with feeble data across the euro area, investors aren’t convinced. Both Goldman Sachs Private Wealth Management and UBS Global Wealth Management reckon American equities will rule supreme next year, citing better U.S. corporate earnings.

“This week’s strength in risk assets continues the theme of investor sentiment improving from the high certainty of a recession view a couple months ago to something much more sanguine on global growth,” said Nathan Thooft, head of global asset allocation at Manulife Investment Management. “However, given where assets have repriced to — more muted responses are likely in 2020.”

–With assistance from Yakob Peterseil.

To contact the reporter on this story: Ksenia Galouchko in London at

To contact the editors responsible for this story: Blaise Robinson at, Sid Verma, Chris Nagi

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