Market Report :
December was a strong finish to a great year in the investment markets, and 2019 was a strong finish to a very productive decade. Stock market investors were richly rewarded for accepting the risks inherent in stock market investing, while bond investors also enjoyed higher-than-normal returns. The U.S. equity markets continued to outperform foreign stocks, but with some area of foreign markets showing promise in 2020.
For December 2019, the Dow Jones Industrial Average total return gained 1.87%, the S&P 500 total return was up 3.02% and the tech-heavy NASDAQ total return posted a gain of 3.63%. The 4th quarter of 2019 was particularly strong, with the Dow, S&P 500 and NASDAQ gaining 6.67%, 9.07 and 12.47%, respectively.
2019 as a whole provided some of the best stock market returns in years. The Dow, gaining 25.34% in 2019 enjoyed its best year since 2017. The same applied to the S&P 500 and the NASDAQ, gaining 31.49% and 36.69%, respectively, posting their best returns since 2013. And as for the decade ending in 2019, the Dow, S&P 500 and NASDAQ gained 173.67%, 189.73% and 295.42%, respectively.
The U.S. bond market, measured by the Barclays U.S. Aggregate Bond Index lost .07% for December, but gained 0.18% in the 4th quarter and 8.72% for 2019. The Barclays U.S. Corporate High Yield Bond Index, which is more highly correlated to the stock market, gained 2% in December, 2.61% in the 4th quarter and 14.32% for 2019.
Market Perspective :
Without question, 2019 was a great year in the investment markets and arguably the best since 2013. So what drove the markets? We see primarily three things – an accommodating Federal Reserve (Fed) by lowering interest rates three times in 2019, strong consumer spending (helping GDP) and better-than-expected corporate earnings. However, the year was not without volatility. The 1 st quarter was a rapid recovery from the bear market in the 4 th quarter of 2018, and then the markets traced slightly upward for a few months. The 4 th quarter was a renewed rally in most of the U.S. equity markets.
The single most significant factor missing in 2020 will be the Fed – they have indicated that interest rates are likely to be left as is for the year. With a continued willing consumer and steady corporate earnings, slightly higher economic growth is expected in 2020 with a GDP in the neighborhood of 1.75%. Also expected is that the U.S. equity markets will once again lead the world in terms of index returns.
Historically, the year following a year of 20% or more growth in the U.S. stock market has averaged between 10% and 11% - and we do have positive expectations for the U.S. markets in 2020. But the wild card is the 2020 Presidential election. In past election years when the economy and job growth have been strong, the incumbent party has been re-elected. But this may be a very difficult election to predict!