2019 Market Performance Review and 2020 Look Ahead
As we begin a new decade, we look back on 2019 as a year for the record books in the capital markets. We saw the market performance show outsized returns across nearly all asset classes in both equity and fixed income. The broad domestic equity market, as measured by the S&P 500 Index, closed 2019 returning slightly over 31 percent. Broad international markets, as measured by the MSCI ACWI ex US index, returned over 22 percent for the year. Meanwhile, interest rates fell to near all-time lows with the Federal Reserve cutting rates three times during the year. This action by the Fed, coupled with strong investor demand for fixed income, resulted in decidedly positive bond returns in 2019. These levels of returns in both equity and fixed income markets are somewhat of an anomaly. Indeed, 2019 was a year that investors can celebrate, but not expect to repeat.
Global Economies and Market Performance
Many economic readings of market performance in the U.S. continue to be favorable, though there are a few exceptions. In 2019, U.S. unemployment reached a 50-year low of 3.5 percent and inflation ended the year at 1.7 percent, well below the Federal Reserve’s target level of 2 percent. In addition, recent economic readings for wage growth as well as consumer spending and confidence continue to generate cautious optimism. The latest GDP reading for the U.S. was positive with third-quarter economic growth of 2.1 percent, but manufacturing activity and business investment remain weak and will be a key area of focus going forward.
Economic conditions outside the U.S. appear mixed. While economic growth and market performance is still positive across developed international markets, broad economic data across Europe reflects weakening conditions. Manufacturing and output are declining throughout the Eurozone, partly a result of falling global demand as well as the imposition of trade tariffs. The most recent annual growth rate for the Eurozone is a mere 1.2 percent. China’s most recent economic growth figure of 6 percent reflects a continued deceleration, fueled partly by global trade tensions.
Global capital markets were driven upward throughout 2019 partly by accommodative monetary policy around the world which alleviated fears of a global recession. The U.S. Federal Reserve cut interest rates three times in 2019, a pivot from its stance in 2018. Other central banks around the world followed suit with accommodative policies in the form of interest rate cuts or asset purchases. Going into year-end, we saw several central banks, including the U.S. Federal Reserve and the European Central Bank, express a willingness to maintain the current policy stance to help cushion the economy from global growth headwinds going forward.
Looking Ahead: What Does This Mean for You?
As we continue into 2020, we remain cautiously optimistic. While global economic growth remains low, it appears that a global recession is not in the near-term forecast. The International Monetary Fund (IMF) is forecasting global growth of 3.4 percent in 2020, which is an increase from 3 percent in 2019. While the services sector and consumer activity remain a bright spot, a pick-up in manufacturing and business investment remain key for future economic growth. Potential headwinds include U.S./China trade negotiations, geopolitical risk such as tensions in the Middle East, and political activity such as the upcoming election and impeachment proceedings.
Rather than focus on day-to-day headlines of market performance, at Domani Wealth we believe in a longer-term perspective. This past year serves as a good reminder of the importance of maintaining an asset allocation that is closely aligned with your financial goals and provides appropriate diversification. We encourage you to review your financial situation with your advisor to ensure you are positioned appropriately. If you have any questions about your portfolio or financial goals, please call our office for an appointment.
Domani Wealth wishes you the best for the new year.
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