By Brad Rathe
Chief Investment Officer
January 10, 2020
The US Stock market had its best year in 2019 since 2013. One of the first lessons that I was taught in the context of investing was to maintain perspective. “Emotionally never get too high or too low.” Historically, a good year normally is followed by an average return year. I feel that 2020 is likely to follow this historical pattern, subject to some concerns that I mention below.
As we enter a new decade, it is a good time to reflect on what has transpired during the previous one and look out for potential opportunities and risks during the new one. The US stock market has been a clear winner during the past ten years compared to developed international or emerging market equities. In addition, the world fixed income markets have benefited from low inflation and favorable central bank activity. Deflationary pressures have been present for more than a decade, but we are starting to see those forces reverse, which may increase inflation.
Two realities that affected 2019 in a positive way are likely to continue during 2020. First, the US consumer was a major catalyst for positive outcomes during 2019 and we expect that reality to continue. Strong employment and wages in the US have been a big driver for consumer spending. Second, the Federal Reserve’s reversal of course in early 2019 was a big reason the S&P 500 was up over 30% for the year (including dividends) and it appears that the US Central Bank will maintain rates in 2020, continuing its accommodative stance.
Some issues concern me for 2020. Are equity markets fully valued? Is the increase in debt levels around the world getting to a concerning level? Geopolitical risks are many, including trade tariffs, middle east problems and upcoming Brexit. Locally, we are experiencing uncertainty and tension stemming from the upcoming presidential election and the presidential impeachment proceedings.
While 2020 is not likely to match the superior returns of 2019, I do not anticipate 2020 reversing the gains we have attained during 2019. The beginning of 2020 is bringing a bit more clarity than the beginning of 2019, as interest rates and trade issues currently seem to be significantly more stable. Most asset classes ended 2019 with positive gains and I expect to see more variability in asset class returns and more opportunity in the year ahead.
We are monitoring the world economy for potential risks and will make adjustments to portfolios as we see global risks change.
Unless otherwise expressly indicated, the opinions or views expressed in this article are the author's own and do not reflect, and may differ from, the opinions or views of StrategIQ Financial Group, LLC or others within StrategIQ Financial Group, LLC, including its officers, managers, owners, employees or other service providers.