Market Update

December 31, 2019

At the end of the third quarter of 2019, we highlighted three potential significant risks to capital markets:  President Trump’s possible impeachment; trade negotiations with China; and aggressive military actions by Iran in the Middle East.  All three risks were extensively covered by the media during the fourth calendar quarter and each risk was presented as a possible negative factor affecting capital markets.  In actuality, none of those risks affected capital markets.
 
In reality, on the economic front, estimated growth in fourth quarter real Gross Domestic Product (GDP) increased from 1.0% to 2.6% during those last three months.  Corporate profits were stable, consumer spending was strong, inflation was low and consumer attitudes about the future were optimistic at historically high levels.
 
Capital markets interpreted all these data and produced a very strong result for the fourth calendar quarter of 2019.  The S&P 500 was up 9%, the Dow Jones Average was up 6% and the NASDAQ was up 12%.  Small capitalization stocks were up 8%, while medium capitalization stocks were up 6%.  International Developed Markets were up 9% and Emerging Markets were up 14%.
 
Interest rate levels on the 10 year U.S. Treasury Note remained under 2%, but the yield curve is now definitely positively sloped, a sign of economic strength going forward.  The Federal Reserve injected over $400 billion into the financial system, largely to finance the repo market for very short term borrowers.  This infusion of liquidity was the principal cause of the very strong returns to investors in all parts of the capital markets.
 
At the end of this year, which is also the end of the decade, we can state that the S&P 500 produced a compound annual return over the past decade of more than 13% per year, by far the best major market return in the world.  Japan was second at just over 8% per year.  No major index has ever produced back-to-back decade long returns that led all major markets in the world.  We do not believe the S&P 500 will be the best market over the next ten years, but we do believe it will do well and with lower risk than other major markets.  We continue to be fully invested in equities within client portfolios, in anticipation of good returns in 2020.
 


Raymond A. Beplat, CFA
Chief Investment Officer




Archived Market Updates


September 30, 2019

June 30, 2019
March 31,2019
December 31, 2018
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