Year 2020 has been ushered in with fireworks and celebration, the same type of fanfare that stocks exhibited throughout 2019. In fact, last year turned out to be the third best year for global equities since the beginning of this century (MSCI ACWI global index returned 26.6%). Ten out of the twelve months in 2019 were good ones for the U.S. markets, and despite the anxiety and stress caused by the U.S.-China trade talks, the markets were remarkably calm throughout the year. Will this stability carry over into the new year, or will it turn out to be the calm before the storm?
Riding on the Coattails of 2019
2019 began on the heels of a very difficult fourth quarter of 2018 in which stocks declined by as much as 20%; however, January pivoted in a positive direction, and the momentum carried the markets higher for most of the year, with only a few minor setbacks. While there was some hand-wringing over global trade discussions, a somewhat contentious relationship between President Trump and Federal Reserve Chairman Jerome Powell, as well as concern about an inverted yield curve, investors chose to focus on the glass half-full aspects of low unemployment, slower-but-still-growing economic growth and moderate inflation.
4th Quarter Market Performance
In terms of market performance, the fourth quarter results were very impressive across the board. Just as fireworks come in all types of sizes and levels of intensity, so do market returns. U.S. large company stocks (S&P 500) and mid-cap stocks (Russell Mid Cap) took off like bottle rockets, appreciating by 9.1% and 7.1%, respectively. The Russell 2000 Small Cap index popped like a firecracker with growth of 9.9%. Like a multi-colored sparkler, international stocks in the developed markets of Europe and Japan (MSCI EAFE index), also shined, returning 8.2%. The big winner for the quarter was the MSCI Emerging Markets benchmark, which ascended 11.8%, much like a bright Roman candle in a dark sky. The bond market resembled that freshly-lit firework that just fizzles out, returning only 0.2%, based on the Barclay’s Aggregate index.
A Short-Term Look Ahead
As we turn the page to 2020, there are both challenges and opportunities. The year begins with continued chatter about how the Impeachment proceedings will play out in the Senate, and the year will end with a Presidential election in the U.S. While stock valuations are above historical norms, interest rates are below average, which is reducing the concerns of a market bubble about to burst. Fears of an imminent recession have also dissipated; however, until a comprehensive deal is worked out with China, investors must still be aware that optimism can turn to pessimism in the blink of an eye. Lastly, markets and the economy have been in an upward trend since March 2009, and at some point, there will be an extended period of disappointment. The first decade of the 21st century included two nasty bear markets and resulted in flat returns for the 10-year period ending 12/31/2009. Thankfully, however, the decade that just concluded delivered strong double-digit annual returns. In summary, it is impossible to confidently answer the question raised at the end of the first paragraph. We do know, however, that based on market history, successful investors remain focused on long-term goals and don’t try to time the markets or let emotion cause them to make short-term decisions.
John Cox serves as Chief Investment Officer and a Senior Client Consultant with Waverly Advisors. Click here to learn more about him or to reach out to him directly.
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