Q4 2019 Economic and Market Perspective

After ending not only what was a banner year for Wall Street, December 31st went down as the final trading day of the decade. Total index returns for the past ten years exceeded 300% with the S&P 500 leading at over 188%, spending 9/10 years up in the market. As the year that rounded out the longest bull market ever (2010-2019), 2019 posed huge returns and produced several milestones for the global markets.

This past year has more than contributed to the exceptional return percentages for the decade- as predicted, the 2019 stock market spent a great deal of time reversing the 2018 Q4 dive. By mid-June, the S&P had recovered to a fresh record high and risen almost 23% from the previous years to go on and finish 2019 with a 28.9% gain overall. The Nasdaq also had its best one-year performance in six years after rallying 35.2%, and the Dow Jones rounded out this trifecta with a 23.76% return for the year. Small cap equities and global stocks saw some of the best returns in several years and put an exclamation point on the widespread gains for Q4.

Arguably the most notable milestone of the decade would be the rollercoaster driven by the Federal Reserve. After multiple rate raises to reach a high of 2.5% by 2018, three cuts were made in 2019 alone to stimulate borrowing in the face of a slowing global economy. This made the past year conducive to home-buying, refinancing, credit lines, and overall consumer spending in the US. “By any objective measure US large cap stocks start 2020 on perilous footing. Valuations are rich. Corporate debt levels are at record highs,” said Nicholas Colas, co-founder of DataTrek Research to CNBC, “But… we know the Federal Reserve has learned its lesson. It will be quick to ease if necessary and slow – very slow – to raise rates.”

The end of 2019 also marked a breakthrough in the long-winded US-China trade discussions, closing the year out with a “phase one” of a deal coming through. Between this and the on-going impeachment trials, Market Watch claims that “policy uncertainty” is at an all-time high, causing the stock market to swing high or low as a result of something as minimal as a tweet to something as influential as a breaking news report. As we move further and further into a world of digital influence, the effect politics has on emerging markets will only expand as we continue into 2020- social scientists accredit this overall “uncertainty” to a nation divided politically and anticipated changes to come with this years election. While politics will always grab the market’s attention, market risk is not synonymous with political uncertainty, so investors are encouraged to act patiently and not impulsively.

Moving into Q1 of 2020, the global economy is showing signs of life that indicate a possible break from the long-winded deterioration. If this is sustained, market expectations can remain high and point to significant earnings growth in 2020. Bond yields remain low, fixed-income moves in a positive direction with the rise in inflation expectations in Q4, and declining interest rates boost spending overall- all pointing to a period of economic improvement globally. With this, as predicted, the risk of a US recession remains low and as hearsay, encouraging investors to remain cautious but optimistic while maneuvering the first quarter of 2020.

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