January 10

2019 Year-End Market Update

We have just completed the final quarter, not only of the year, but also the decade. It is a good time to reflect upon the market’s behavior.  The short version is that we have experienced a bull market for the entire ten-year period. No bear stock market periods (-20% declines) and only a few 10% corrections since June 2009.  History will remember the decade of the 2010s as the longest bull market in American history.

It is worth noting, the predictors of economic doom were once again totally off-base.  When the Federal Reserve Board stepped in to stem the worst of the Great Recession, there were widespread cries that the Fed was “printing money” in a way that would lead to massive inflation and/or the bursting of a stock market bubble. Yet, domestic inflation never exceeded 2.1%.  And the stock markets have increased 500% since March of 2009.

By any measure, 2019 was a remarkable year for investors. It scarcely seemed possible one year ago – stocks went on sale in December 2018, and many market forecasters were predicting the bearish trend would continue through calendar 2019.

Investors who took advantage of the lower prices or stayed the course saw well-above-average gains almost literally across the board.  The markets went on sale again in August when there were reports of an inversion of the bond market yield curve, interpreted as a signal of a recession on the horizon. There was also drama with international trade policy and tariffs in the mix causing concern of global slowing.  The stock market continued to march forward.  As has been said– Bull stock markets climb a wall of worry.

A prudent observer would have to admit the decade just passed will be a tough act to follow. Since the low point of the last bear market reached on March 9, 2009 the S&P 500 index has risen an astounding 498.5% on a total return basis. And the 10- year Treasury Yield fell from 2.9% to 1.9%. Where do we go from here?

Remarkably the series of new highs in stock prices has not been accompanied by the euphoric sentiment which so often accompanies manic market phases. There is a cautious attitude among investment professionals, as there are still heightened trade tensions with China, a discernible slowing in global manufacturing, the specter of impeachment, Brexit in Europe and now instability with Iran… Not to mention this will be a presidential election year.

Most economists are reluctant to predict an economic downturn when unemployment is at record lows and the slow-growth economy is chugging along with a 2.3% gain in 2019.  There is always some risk of recession on the horizon, but for now it seems this has been avoided in the short-term. Given current market valuations and economic fundamentals it’s reasonable to suggest the potential of modest investment returns in the coming year, reflecting an optimism of continued slow growth.

Ultimately, no one can predict the next recession or the end of the current bull market timing. The past decade has given us much to celebrate and we enter the new decade with the proper perspective to respect market forces.

If you have any questions, please call.


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