January 09, 2017

The markets appear to have reached an inflection point: The New Normal Era has ended, and a Retro Normal Era has begun, Bernstein CIO Seth Masters writes in “The Retro Normal: Investing in the Changing Landscape.”

In the New Normal Era, massive central bank stimulus drove up returns for most asset classes, fostered market calm (despite occasional spikes in volatility), and compressed the difference in returns among securities within asset classes—though safety stocks led. As a result, few active managers outperformed.

In the Retro Normal Era, by contrast, the Federal Reserve is withdrawing stimulus, the difference in returns among securities is wider—and safety stocks are lagging far behind. As a result, active managers as a group are delivering premium returns again. Our Strategic Equities service, for one, outperformed the S&P 500 by more than 1% in November alone. That’s fortunate, because expected returns are low for most asset classes, and variable volatility is likely to make investing far more challenging in the years ahead.

To succeed in the Retro Normal Era, investors will need an updated, customized investment plan, active management, and risk management at every level—from underlying stock and bond portfolios to asset allocation. That’s something that Bernstein is particularly well equipped to provide.