In the Market & Economic Outlook, we separate the relevant from the noise, to bring you timely content that helps you on the path to and through retirement!
Optimistic About Stocks!
STATE OF THE MARKETS (S&P 500 + .22% YTD through 1/07/2020)
What a year for stocks! In 2019 the Dow was up 22%, the S&P 500 Index grew nearly 29% and the NASDAQ was up over 35%. We don’t expect anything close to these results in 2020 because of the very contentious political environment and the now long-in-the-tooth business cycle.
However, we remain optimistic for several reasons: 1) economic indicators are still (mostly) positive, 2) Presidential election years are usually good for stocks no matter the outcome, and 3) The Federal Reserve cut rates three times in in 2019, which should give stocks a boost heading into the first couple months of 2020.
Meanwhile, with stocks getting all the attention in 2019, the bond market posted an 8.8% gain in 2019 – a fantastic return for bonds! The bond market returns have been driven primarily by lower interest rates, and with the Fed now on pause with interest rate cuts, we expect more stable yields and lower returns for bonds in 2020.
What’s Influencing Client Portfolios?
We are keeping an eye on a few things that will likely influence client portfolio returns in 2020:
- First, we are starting to see global economic activity pick up. Better global economic conditions combined with a weaker dollar and favorable valuations make international stocks one of our top picks for 2020. We have been active in increasing international allocations in client portfolios in 2019 and will likely continue to move in that direction where appropriate in 2020.
- Second, the Fed is now on pause with interest rate cuts, signaling that they won’t raise rates anytime soon unless there is a significant and persistent rise in inflation. Stable and unchanging interest rates will likely cool stock and bond market returns in 2020.
- Third, the “historic” Phase-One trade deal with China and the newly agreed to USMCA (Canada/Mexico trade agreement) should boost U.S. and global growth.
A counterintuitive reason why we are confident about 2020’s further growth prospects is that investors are so afraid. Investors have pulled a record $135.5 billion out of the stock market in 2019 (even despite phenomenal returns!) and have been pulling money out of stocks for seven consecutive quarters.
Investors remain very apprehensive about the stock market’s growth potential and that in itself is a positive sign. Currently, there is a significant amount of cash on the sidelines that may get deployed if the stock market growth continues and investors become increasingly impatient.
We are in the midst of possibly the strongest economic cycle in our lifetime. The consumer has cash to spend and rising incomes to pay for it. Stock and bond markets appear poised to continue their upward run in 2020. Enjoy the ride!
This week we celebrated True North’s 2nd Birthday with a friendly, yet competitive game of bowling! Team Ashley won this time… but a rematch is on the horizon!