Will 2019’s Unexpected Gains Continue in 2020?
Somewhat unexpectedly, 2019 turned out to be a very strong year for most investment categories. Large Cap US Stocks, represented by the S&P 500 Index, continued to lead the way in the 4th quarter (up 9%) as they have for the duration of the longest Bull Market in US history. For the full year, led by Technology companies, US Stocks gained north of 30%. Diversified investors typically own non-US Stocks and Bonds, which also produced above average gains in 2019. The MSCI EAFE index of Foreign Stocks was up 22%. The Bloomberg Barclays US Aggregate Bond index, despite current low yields, produced a total return of 8.7%..
In an environment of political and economic stress, most investors watched their portfolios grow with some satisfaction. Global and US economic growth estimates were adjusted downward in 2019 under the consistent threat of trade wars and higher tariffs. Manufacturing and business investments contracted compared to 2018 as uncertain economic growth led companies to be more cautious with their spending. The US Treasury “yield curve’ inverted mid-year with the interest rate on 10-year T-Notes dropping below the yield for 2-year Treasuries. This caused the US Federal Reserve Bank to reverse course and reduce the Fed Funds Rate three times in 2019 after boosting rates four times in 2018. While US political gyrations, from Russian collusion to impeachment, filled the headlines, investment markets largely ignored these distractions.
Looking forward, we enter 2020 with more political and economic uncertainty. Hong Kong continues to defy China’s demands for more government control. Aging demographics in many European countries and Japan suggest limited growth opportunities. How will impeachment play out in the Senate and impact the US Presidential election? Is the Middle East ready for another revolution or will Iran stay the course? Given these questions, it is surprising that many stock indexes have been setting new all-time highs in recent weeks.
Perhaps the biggest driver of investment optimism has been the easing of monetary policy among most central banks around the world. With no signs of inflation to fight, central bank policies have returned to Quantitative Easing and lower interest rates. Other developments are also contributing to a positive outlook. Brexit looks like it will happen in 2020 and the risks from Brexit appear overstated. A “phase 1” trade deal with China will allow exports and imports between the two largest global economies to return to normal. The USMCA trade deal will replace NAFTA, further clarifying trade rules with our two largest trading partners – Canada and Mexico.
Of course, 2020 is a Presidential election year here in the US. Each result in the Democratic primaries will be analyzed. Both political parties will hold their conventions. The Presidential debates will likely create further political divide. Up to now, the US Consumer has been a driving force in the steady economic growth of our country. Unemployment is at historic lows, wages have been growing and personal debt remains under control. A strong US Consumer should help maintain the longest economic expansion in modern US history. Our political cycle will always create uncertainty, but it does not change your family’s financial plan and should not alter your long-term investment strategy.
This article was authored by Christopher Borden, a financial advisor and Managing Partner located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 508.598.1082 or [email protected]
Disclosure: Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. Investments are subject to risk, including the loss of principal. Because investment return and principal value fluctuate, shares may be worth more or less than their original value. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Talk to your financial advisor before making any investing decisions. The S&P 500 is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. Barclays U.S. Aggregate Bond Index is an unmanaged market value-weighted index for U.S. dollar denominated investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The MSCI EAFE Index is an equity index which captures large and mid cap representation across 21 Developed Markets countries around the world, excluding the US and Canada.
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