January 24 2020 Market Update
The Year in Review
The year 2019 was good to equity markets. The S&P 500 returned 29 percent for the year, while the Nasdaq rose 38 percent. Large European markets also rose, with Germany’s Dax up about 25 percent and Britain’s FTSE 100 returning 12 percent for 2019.
Of course, the question on many investors’ minds is what will happen in 2020. There were a number of key drivers of equity market performance in 2019, among them support from central banks worldwide through low (or negative) interest rates, the overall softening in trade war rhetoric with China, and a strong labor market here at home.
Much can obviously happen in the coming year, such as what we have already seen in the Middle East but there are a few key market and economic issues we’ll be keeping an eye on.
On December 31, 2019, President Trump announced that the US and China would sign a “phase one” trade deal on January 15, a step towards an eventual resolution to the trade conflict. Of course, there could be additional conflict as negotiations continue, but this was widely received as positive news by the markets.
Outside of the US-China negotiations, the US has levied or threatened tariffs against other trading partners, which could have an impact on the US economy over time. Overall, there has been a global slowdown in trade in the wake of sluggish global economic growth.  This could be an important theme in the coming year, as policymakers seek to boost or maintain their countries’ prospects.
Monetary Policy and Interest Rates
Globally, negative-yielding debt – debt that is not generating yield but rather costing yield – reached over $17 trillion last year. In the US, rates are positive but low, part of an effort to support the economic expansion.
It is our view that this kind of supportive monetary policy will continue into 2020, both at home and abroad, given that there are still areas of concern in the global economy – the International Monetary Fund described the situation as “precarious” as recently in October.
In Europe, there is hope that the governing council of the European Central Bank will come together under the leadership of Christine Lagarde, who took the helm late last year. Europe has been negotiating a complex negative-interest rate environment and numerous political and economic policy differences across its member states. The outlook in policy and prospects will be closely watched by market participants.
Growth in American jobs has continued to soar. From September to November 2019, payroll gains averaged 205,000 per month, while November payrolls rose 266,000. Considering that we are in the eleventh year of the economic expansion, we can only describe these as very good numbers.
The unemployment rate continues to hold at historic rates, falling to 3.5 percent in November. Wage gains have ticked up – not as much as one might expect given low unemployment, but the 3.1 percent annual gain through November was still a boost.
We will continue to watch how employment expands in 2020: it’s reasonable to expect the pace to moderate, but the strength of job gains in the decade through 2019 has been pretty remarkable.
Heading into 2020
The year 2020 will bring another US presidential election. There is a crowded field of Democratic candidates for the presidential nomination, and with impeachment proceedings now moving to the Senate, we are settling in for a full year of political news.  With other policy issues, including global trade agreements, in the mix, we could see a rise in market reactivity.
Also in global trade, we are watching the ongoing negotiation of Brexit. The British parliament is currently debating an exit bill that must then be approved by the European Parliament. The expected deadline for this process is January 31, 2020, after which trade talks with the European Union can begin. If those don’t reach a conclusion by year-end, a “hard” Brexit will be take place and the UK will leave the European Union without a trade deal in place.
Overall, we have seen other sources of geopolitical tension that we expect to last through this year. The ongoing protests in Hong Kong have begun to take a toll, and tensions in the Middle East, namely with Iran, continue to simmer.
All said, the World Bank expects a modest increase in global growth in 2020 as trade tensions loosen and economies begin to rebound, with an anticipated global expansion of 2.5 percent.
Your Portfolio in 2020
What will the markets deliver in 2020?
As we all know, it’s incredibly difficult to make predictions. What we recommend instead is creating strategies.
As you know, we are firm proponents of diversification: in our experience, the only thing more frustrating for investors than losing out on potential upside is taking the full impact of downside.
As we so often say, markets go up and markets go down. It’s our job to devise a strategy that’s appropriate for your personal needs and objectives and to maintain that strategy throughout the market cycle. In our view, intelligent investment strategies function throughout cycles, not just in one particular type of environment. We typically like to run left when everyone is running right and vice versa.
We’re always happy to discuss your investment policy and to answer any questions you might have about the markets or the economy. In addition, it’s a good time to review and update your financial planning goals for 2020.
Thank you again for an amazing partnership in 2019, and we’re wishing you a happy, healthy, prosperous 2020.
Securities are offered through Mid Atlantic Capital Corporation (“MACC”) a registered broker dealer, Member FINRA/SIPC.
Investment advice is offered through JSF Financial, LLC, which is not a subsidiary or control affiliate of MACC.
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The Bloomberg Barclays U.S. Aggregate Bond Index measures the investment-grade U.S. dollar-denominated, fixed-rate taxable bond market and includes Treasury securities, government-related and corporate securities, mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities.
The S&P 500 Index is an unmanaged, market value-weighted index of 500 stocks generally representative of the broad stock market.
The MSCI World Index is a broad global equity index that represents large and mid-cap equity performance across 23 developed markets countries and covers approximately 85% of the free float-adjusted market capitalization in each country.
The MSCI Europe Index captures large and mid cap representation across 15 Developed Markets countries in Europe and covers approximately 85% of the free float-adjusted market capitalization across the European Developed Markets equity universe.
The MSCI Emerging Markets Index captures large and mid-cap representation across 26 emerging markets countries and covers approximately 85% of the free float-adjusted market capitalization in each country.
 https://www.bloomberg.com/news/articles/2019-12-30/asia-stocks-to-drop-in-light-trading-dollar-falls-markets-wrap and https://www.theguardian.com/business/2019/dec/31/global-stock-markets-post-best-year-since-financial-crisis
 Trade https://www.wsj.com/articles/trump-says-he-will-sign-phase-one-trade-deal-with-china-on-jan-15-11577802332?mod=article_inline, monetary policy https://www.reuters.com/article/us-usa-fed/fed-keeps-rates-on-hold-points-to-favorable-economic-outlook-next-year-idUSKBN1YF0HO, Jobs growth https://www.nytimes.com/2019/12/06/business/economy/november-jobs-report.html
 Political candidates: https://www.cnn.com/election/2020/candidates and impeachment news: https://www.nbcnews.com/politics/trump-impeachment-inquiry/live-blog/live-trump-impeachment-senate-trial-coverage-n1119061
 For example, please see https://www.reuters.com/article/us-usa-iran-iraq/soleimani-killing-adds-dangerous-new-dimension-to-iraq-unrest-idUSKBN1ZL28K and https://www.wsj.com/articles/u-s-looks-to-maintain-pressure-on-iran-as-tensions-cool-11579516201
Performance table sources:
S&P 500 http://performance.morningstar.com/Performance/index-c/performance-return.action?t=0P00001G7J®ion=usa&culture=en-US