Marco Fragnito, Managing Principal | Robert R. Fragnito, Chief Operating Officer | Print Version
- US equity markets delivered their best returns since 2013.
- Easing of trade tensions, Fed policy, and clarity on Brexit helped investor sentiment in 2019.
- In our view, financial markets in 2020 may surprise to the upside.
In the next few weeks we will provide our financial outlook for 2020, in the meantime we pen our final monthly market commentary for 2019.The past year saw US equity markets deliver their best returns since 2013. The Dow Jones Industrial Average rose 25.34%, while the S&P 500 and Nasdaq Composite saw even sharper gains rising 31.48% and 36.74% respectively.
The month of December saw equity markets finish with strong gains on the back of easing trade tensions and much more clarity on the Federal Reserve’s monetary policy. Also helping investor sentiment was the feeling that the results of the British Elections, won soundly by the British Conservative Party, laid the groundwork for a smooth exit from the European Union or Brexit. Finally, the year ending with President Trump announcing that a “Phase One” of the US-China trade agreement would be signed on January 15th, and “Phase Two” negotiations would begin shortly thereafter were contributing factors.
On the economic front the data remained mixed as it has been for most of the year. The Institute for Supply Management’s reading on manufacturing remained in contraction territory, while the employment picture proved brighter than forecasted. The US economy added 266,000 jobs in November well above the expected 180,000, while home builder’s confidence indicator rose to a 20-year high. Early reports from credit card processing showed that retail sales rose an estimated 3.4% for the holiday season, which was better than expected, showing continued strength in consumer spending.
Meanwhile the FOMC (Federal Open Market Committee) voted to leave interest rates unchanged and signaled rates would remain steady for 2020. While interest rates fell across the curve for most of 2019 the yield curve ended the year clearly upward sloping, pointing to a more positive outlook for the economy heading into next year.
We were pleased to see equity markets provide exceptional returns in 2019 for investors, clients and MCF Capital Management. While many worried about US-China trade, a short-lived inverted yield curve, recession talk, and a generally pessimistic view espoused by the financial media—we at MCF chose to focus on what could go right. We felt that the key would be how the Federal Reserve’s monetary policy stance would shift. We strongly felt that the Fed would recognize that interest rates were set too high given the low rate of inflation and numerous downside risks to the economy and would signal an easier monetary policy. Once they did, markets responded positively by sending US equity markets to their best performance since 2013.
We also believed that it was in everybody’s best interest to achieve some agreement on trade, not only with China but also with Mexico, Canada and Japan for the good of the global and domestic economies. Finally, we felt that revenue and earnings forecasts for 2019 would prove too negative, allowing for the market multiple expansion based on lower interest rates to not be offset by lower profits.
In summary, our views were rewarded handsomely in 2019 and we enter 2020 feeling positive about financial markets. The fixed income markets confounded us for most of 2019, we still believe that the risk/reward relationship remains unfavorable for investors heading into this year. We feel it will be difficult for equity markets to repeat the strong performance we saw last year, but we do expect continued positive returns for 2020 that may surprise to the upside.
If you have any questions please contact us directly at 949.472.4579, and feel free to forward this report and our contact information to anyone who might be interested.
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The opinions expressed here reflect the judgement of the author(s) as of this date and are subject to change without notice. Information presented here is for informational purposes only and does not intend to make an offer, solicitation, or recommendation for the sale or purchase of any product, security, or investment strategy. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here. The information being provided is strictly as a courtesy.
Wells Fargo Advisors, Jack Kraft, “Monthly Market Commentary,” January 3, 2020.