Special Market Update: January 2020

2019 Recap

2019 was the year that just kept on giving. Despite continued trade tensions with China, a corporate earnings slowdown following the historic 2018 tax cuts, recession warnings as a result of an inverted yield curve, a slowing Gross Domestic Product (GDP) from Q1 to Q2 to Q3, and a partisan impeachment vote in the House of Representatives nothing seemed able to derail the market from its determination to move higher.

By year's end, markets were sharply higher as the Dow Jones Industrial Average rose 22.3%, the S&P 500 Index increased 28.9%, and the Nasdaq Composite jumped 35.2%.(1)

To put last year's performance in historical perspective, 2019 was the 4th best year on the S&P 500 since 1990 - a span of 30 years (34.11% in 1995 / 31.01% in 1997 / 29.60% in 2015). (2)



Understanding the market's determined upward charge has been difficult for everyone, but most Wall Street analysts attribute it to hope: hope that a trade deal with China would come to fruition, hope that the Federal Reserve would reverse course from 2018 and take a dovish stance* on interest rates, hope that corporate earnings would be better in 2020 than 2019, and hope that a record low unemployment number would keep the consumer engaged, active and spending money. GDP is 72% attributable to consumer spending. With a 3.5% unemployment rate and 3.0% wage growth in 2019, (3) American's have remained strong spenders and borrowers when they are employed.

*The Federal Reserve is often described as "dovish" or "hawkish", the former referring a tendency toward reducing rates and the latter referring to a tendency toward raising rates.

The Decade Closes

The end of 2019 also marked the end of a decade. From a decade-by-decade perspective the period 2010-2019 was more in line with what we have seen in our recent lifetimes than an outlier. For the decade, the Dow advanced 173.67%, the S&P 500 189.72% and the Nasdaq 295.42%.(4)

As stunning as a 190% increase on the S&P 500 over the last 10 years is, it is perhaps more surprising to realize that it trails performance in the 1980's (over 200%) and 1990's (over 300%). The true outlier decade is the 2000's (negative 0.9%), which many refer to as the lost decade due to recessions in 2001 and 2008. (5)



Your next question is probably, "what's in store for 2020?"

In our opinion, 2020 could be a year of four distinct quarters. We feel continued momentum from 2019 will persist in Q1, especially after President Trump announced that the Phase 1 USA-China trade deal will be signed on Jan. 15 at the White House. Thereafter, things will turn political. Q2 will be about the democratic primaries, the eventual emergence of a front-runner and formation of a Democratic ticket. Q3 will feature the mid-summer Republican and Democratic Conventions. And finally, Q4 will focus on preparation for and reaction to the Presidential Election in November.

While election-year politics will carry the day, we expect to see the following important economic developments: continued dovishness from the Federal Reserve ahead of the November US Elections, sustained full employment, and improving GDP as a result of the trade deal and the easing of tariffs. Barring any major surprises as companies report Q4 2019 / holiday shopping results and provide forward guidance for 2020, we can't see a lot of hurdles to navigate in the early part of the year.

The impeachment trial in the Senate already appears to be a forgone conclusion, so we do not feel there will be any downward market pressure from those proceedings. As well, recession talk has almost completely subsided with the 2-year to 10-year yield curve returning to its normal, upward-sloping state after last summer's brief flirtation with inversion.

By choice, we try to not make predictions on upcoming market results or make big swings on ultimate returns. Instead, we focus our attention on managing risk for our clients based on individual return requirements, risk profile questionnaires, and our many personalized engagements.

Without knowing who the President will be at year's end, it is nearly impossible to predict market returns for 2020. The largest remaining unknown affecting the financial markets and the American economy is – "Who will be the next President?". There is nothing the financial markets hate more than the unknown.

That being said, if President Trump is re-elected (markets have historically "liked" the re-election of incumbent presidents) it would be a very bullish signal for equities. His unconventional style, while unacceptable to many, did put the required pressure on the Federal Reserve to get three rate cuts in 2019, a likely Phase 1 trade deal with China and a recently signed revamped-USMCA agreement with Canada and Mexico. A Trump re-election victory could bring Democrats in the House and Senate to the table on infrastructure, healthcare and maybe even addressing immigration and the "dreamers". The best thing for the American people is to have both parties engaged with each other.

On the other hand, a change in the presidency could have a significant, short-term, downward impact – depending on the political agenda of the eventual winner. A mitigating (or exacerbating) factor would be how the House and Senate races conclude. A division in power would "somewhat-mute" what a new president could accomplish. Markets have historically responded well to that. A democratic president with democratic control of the House and Senate could be very unsettling for the financial markets.

Remember This

I'll conclude with this: for every bull there is a bear, for every naysayer a believer. Each market transaction has a buyer and seller who are both happy with the transaction price. This is the beauty of the financial markets.

Every economic data point or political event builds on each other throughout the year. This produces the tug-of-war, the back and forth, the up and down of the financial markets. Opinions make markets. As a wise old man once told me "it's good to have two steps forward and one step back, it helps sustain the march higher".


Sources
(1)https://us.spindices.com/
(2)https://www.macrotrends.net/2526/sp-500-historical-annual-returns
(3)https://www.usatoday.com/story/money/2019/11/14/wage-growth-why-isnt-pay-climbing-faster/2580205001/
(4)https://www.reuters.com/article/us-usa-stocks/wall-street-edges-higher-sp-closes-decade-with-nearly-190-gain-idUSKBN1YZ0US
(5)https://seekingalpha.com/article/4314289-returns-decade




WARRANTIES & DISCLAIMERS

There are no warranties implied.
Any opinions expressed on this website are the opinions of WT Wealth Management and its associates only. Material listed on this website is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. You should always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETF’s carry certain specific risks and part or all of your account value can be lost.

At WT Wealth Management we strongly suggest having a personal financial plan in place before making any investment decisions including understanding your personal risk tolerance and having clearly outlined investment objectives.

View Disclosure
WT Wealth Management is an SEC registered investment adviser, with in excess of $100 million in assets under management (AUM) with offices in Flagstaff, Scottsdale, Sedona and Tucson, AZ along with Jackson Hole, WY and Las Vegas, NV. WT Wealth Management is a manager of Separately Managed Accounts (SMAs). With SMAs, performance can vary widely from investor to investor as each portfolio is individually constructed and managed. Asset allocation weightings are determined based on a wide array of economic and market conditions the day the funds are invested. In an SMA, each investor may own individual Exchange Traded Funds (ETFs), individual equities or mutual funds. As the manager we have the freedom and flexibility to tailor the portfolio to address an individual investor's personal risk tolerance and investment objectives – thus making the account “separate” and distinct from all others we manage. An investment with WT Wealth Management is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Any opinions expressed are the opinions of WT Wealth Management and its associates only. Information offered is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. Always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETFs carries certain specific risks and part or all of an account's value can be lost. In addition to the normal risks associated with investing, narrowly focused investments, investments in smaller companies, sector and/or thematic ETFs and investments in single countries typically exhibit higher volatility. International, Emerging Market and Frontier Market ETFs, mutual funds and individual securities may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability that other nations experience. Individual bonds, bond mutual funds and bond ETFs will typically decrease in value as interest rates rise. A portion of a municipal bond fund's income may be subject to federal or state income taxes or the alternative minimum tax. Capital gains (short and long-term), if any, are subject to capital gains tax. Diversification and asset allocation may not protect against market risk or investment losses. At WT Wealth Management, we strongly suggest having a personal financial plan in place before making any investment decisions including understanding personal risk tolerance, having clearly outlined investment objectives and a clearly defined investment time horizon. WT Wealth Management may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Individualized responses to persons that involve either the effecting of transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption. WT Wealth Management's website is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of WT Wealth Management's website should not be construed by any consumer and/or prospective client as WT Wealth Management's solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the internet. Any subsequent, direct communication by WT Wealth Management with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. A copy of WT Wealth Management's current written disclosure statement discussing WT Wealth Management's registrations, business operations, services, and fees is available at the SEC's investment adviser public information website (www. adviserinfo.sec.gov) or from WT Wealth Management directly. WT Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to WT Wealth Management's web site or incorporated therein, and takes no responsibility therefor. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

Contact Us Today

Call us directly at 800-825-0616
or Contact us by using the contact form below:

Your message has been sent. Thank you!


Cancel