2019 Market Review & 2020 Outlook

By: CHRIS COOK, CPA, CFA
Partner, Chief Investment Strategist

Market Update : 2019 Year in Review

Trade wars and a decline in global manufacturing weighed heavily on the overall state of the economy this past year. However, resilient consumers and a cut to interest rates provided a positive counterbalance for the stock market, which reached record highs in 2019.

What drove the 2019 markets? Three key factors had the most influence over investment performance in 2019:

The Fed did a major pivot in U.S. monetary policy in 2019.

In 2019 the central bank made three quarter-point cuts to the benchmark short-term interest rate. Investors welcomed this change, counter to the interest rate hikes in 2018. Since January, when the Fed began changing course, the S&P 500 index has risen more than 600 points, or 25 percent and the unemployment rate fallen from 4 percent to 3.5 percent - putting the economy on solid footing heading into 2020.

 (washingtonpost.com/business/2019/12/11/year-federal-reserve-admitted-it-was-wrong/ [12/11/19])

The trade quarrel with China cooled down slightly.

In December, representatives from both nations agreed on a “phase-one” trade deal after a year-and-a-half of imposing tariffs on each other’s products. The new agreement, which is expected to be signed in early 2020, will be the initial step toward a larger deal in hopes to reduce some US tariffs in exchange for more Chinese purchases of American products and better protection of US intellectual property. bbc.com/news/business-45899310 [12/16/19]

Earnings beat (low) expectations. 

One year ago, stock market analysts were pessimistic about corporate profits. With economies worldwide slowing down in 2018, year-over-year earnings growth for S&P 500 firms seemed ready for a slowdown as well.

Deceleration was evident, but as the year passed, many firms managed to exceed reduced estimates. According to stock market analytics firm FactSet, 75% of S&P 500 components beat earnings-per-share estimates in Q3, compared to a 5-year historical average of 72%. (insight.factset.com/earnings-insight-q319-by-the-numbers-infographic [11/21/19])

The S&P 500 climbed above 3,000 for the first time finishing 2019 up 31.49%. The Dow Jones Industrial Average advanced 25.34%, while the Nasdaq Composite was up 36.69%. (Morningstar)

Certainly an impressive year by any measure, but let’s look longer term. Specifically, at the last two decades. The 2000’s were much tougher for the S&P 500. For the 10-year period 2000-2009, the index was down a cumulative -9.1% (-0.95% per year). The next decade, capped by a notable ‘19, was up by +256% (annualized +13.65%). The average for the entire 20 years? +6.06%.

An innocuous prediction for the next 10 years would be somewhere between those two decades of extreme.

Looking Ahead to 2020

The news and political cycle will remain volatile this year. A U.S. economic outlook split between manufacturing and business investment still struggling to decipher trade deal(s), however, interest rates and borrowing costs are likely to remain unchanged for some time and consumer confidence and spending is expected to stay healthy and strong with low unemployment.

As we’ve said before; Rely on process, not prediction. The Gilbert & Cook team keeps focus on patience and a long-term perspective. Living an abundant life and fulfilling the needs of your future is dependent on the plans and solid process executed today.