FOR THE MONTH ENDING DECEMBER- 2019
A Solid Year for Stocks
It was a good year for the U.S. economy and all major asset classes in 2019. The S&P 500 generated a 31.5% return, second only to 2013 (32.4%) over the last 20 years. Making the year more impressive was that bonds also performed well as the ICE BofAML US Broad Market Index posted an 8.9% gross return for 2019, the highest since 2002. Commodities finished the year up 7.7% and REITs earned 28.7%.
Equity markets did not react noticeably to President Trump’s impeachment hearings. But both domestic and international markets responded favorably to the U.S.- China Phase One trade agreement and to increasing clarity pertaining to the UK’s exit from the European Union.
For the quarter, emerging markets outpaced domestic and developed international equities. Growth stocks continued their 4-year outperformance versus value stocks while small cap equities edged out their larger cap counterparts during the quarter.
Technology was the top-performing sector in Q4 followed by Healthcare and Financials. Defensive sectors such as Utilities and Consumer Staples lagged but remained positive. Real Estate was the only sector that declined during the quarter.
GDP growth in 2019 was better than expected and above trend despite a weaker global economy and heightened uncertainty surrounding trade policy. Personal savings as a percentage of disposable income averaged 8.1% in 2019 (through November), two percentage points above the 20-year average.
Despite fears of an inverted yield curve in August, the spread between the two-and 10-year Treasuries widened in the fourth quarter with the largest spread of 2019.
The headline unemployment rate currently sits at a 50-year low of 3.5%. If labor markets continue to tighten in 2020 and the unemployment rate falls another 20 bps to 3.3%, it would be the lowest reading during peacetime since the 1920s.
Investors will closely watch the 2020 U.S. national elections to see which party will control the presidency as well as the legislative branch as there is a wide range of fiscal views among the candidates.