2019 Year in Review
Written by Philip Lockwood
In 2019 the S&P 500 gained 28.5%, its best performance since 2013 and the 13th year in the last 25 that the index has returned at least 15% (total return) for the calendar year. In fact the SP 500 has been positive in 15 of the last 17 years. Over the long-term, the S&P 500 has been up during 40 of the last 50 years. (Source: BTN Research)
The S&P 500’s run up was primarily led by surging tech stocks. The indexes information technology group had its’ best return since 2009 as AMD and other semi-conductor firms lead the way. AMD joined the New York Yankees and the New England Patriots in the exclusive club of back to back Champions. (Lead the S&P 500 in 2018 and 2019) The tech stocks do not tell the entire story though as almost 90% of the stocks that comprise the S&P 500 were positive. (Source: https://markets.businessinsider.com/news/stocks/sp-500-2019-annual-return-for-year-best-since-2013-2019-12-1028790061?
The full story is not only told with equity returns. The taxable bond market was up 8.7% in 2019 (total return) and has gained 5.9% per year (total return) over the last 30 years. (1990-2019). The Bloomberg Barclays US Aggregate Bond Index (created in 1986), calculated using publicly traded investment grade government bonds, corporate bonds and mortgage-related bonds with at least 1 year until final maturity, was used as the bond measurement. The index is a major benchmark for US bond investors (source: Bloomberg Barclays). (source: http://performance.morningstar.com/Performance/index-c/performance-return.action?t=XIUSA000MC)
We had 252 trading days in 2019, of those days 60% were up and 40% were down. Even with only 60% of the trading days being “up” days the S&P 500 still returned 28.5% rate of return. It is remarkable when we look at the last 50 years (1970-2019) to think the split between “up” and “down” trading days for the S&P 500 is 53% up and 47% down. This encompassing a total of 12,613 trading days, even with all of those days and an overall deviation of only 6% between positive and negative days. (source: https://www.crestmontresearch.com/docs/Stock-Yo-Yo.pdf)
The one area that had me worried during 2019 was the yield curve inversion. Historically this is a relatively accurate sign to a coming market recession, but I believe the Federal Reserve helped calm markets with rate cuts that brought the treasury market back into their trading window, and recession worries faded as the 3rd and 4th quarter showed robust consumer spending, low unemployment and increased wage growth. If you would like to understand the history of a yield curve inversion you can read my post from September 13th, 2018. http:www.lockwoodfinancialstrategies.com/recession-or-expansion-the-mighty-yield-curve/
On the international front we had UK’s general election yielding a new Conservative majority, offering clarity around the future of Brexit. This clarity eased uncertainties surrounding the Stoxx Europe 600 index ending the year up 23% (https://en.wikipedia.org/wiki/STOXX_Europe_600). Part one of the trade agreement continued to propel Chinese stocks with the Shanghai Composite up more than 22%(https://www.cnbc.com/2019/12/31/asia-markets-december-31-new-years-eve-trade-in-australia-hong-kong.html), and Japan’s Nikkei 225 up 18%( https://www.cnn.com/2019/12/29/investing/asian-market-latest/index.html) Overall it was a good year for many of the global indices.
When things are good it is important to defer to your financial plan to dictate your required personal rate of return to achieve success. It is not the time to take unnecessary risk, look for market timing or let emotion cloud your judgement. I had one client this year that was convinced that she could time the market. I think her consideration was based on a combination of emotion, media message and the fact that markets were at all-time highs. When we take emotion out of the equation and look at the facts, we find out that timing the market is nearly impossible. The total return of the S&P 500 over the last decade was a gain of 13.6% per year (total return). If you missed the 10 best percentage gain days over the last 10 years (10 days total, not 10 days a year) the 13.6% annual gain drops over 29% to an annual gain of 9.2% (source:BTN Research) The best visual I could find shows the S&P 500 return over a 15 year period between 12/31/02-12/31/17. You can see if you missed the 10 best days over that period your annualized return is nearly cut in half.
While it is fun to look back any statistician can regurgitate the numbers of the past decade and the history of the markets. The one thing I can do is look at the overall picture and give you my two cents on what the future may hold. I will later attempt to put some of the fears and biases some of you may hold at ease by looking at how relevant concerns you may hold for 2020 have played out in the past.
4 Things I think you can expect in 2020
I normally like to write this part myself, but I feel as if one of my counterparts, Ben Carlson, said it so well I will just pass along the 4 I like the most. For the full article click below.
- When stocks run into a rough patch it will feel more comfortable to do something rather than nothing. Doing something, anything, during big market moves, can make investors feel better about themselves because it gives us the illusion of control, whether those moves are necessary or not. Grabbing the wheel, so to speak, when things get hectic will always feel like the right move because making portfolio changes offers a release valve. It’s during these times that patience is rewarded more than ever.
- There will be other people getting richer than you. Fear and greed often influence investors into making mistakes with their money. But envy is probably a more destructive force. Seeing your peers, friends, or even perfect strangers making money faster than you can cause some strange emotions and reactions. This is true in down markets as well. Someone is bound to put on the right hedge or trade at an opportune time. When that happens you will always regret not doing the same
- Diversification will make you feel silly. Any long-term investment strategy is bound to make you feel foolish over the short-term. This is especially true at market extremes as the limits of your patience and discipline are sure to be tested. Diversification is for patient people, and that requires ignoring those market environments that make you less than thrilled about spreading your bets and managing risk
- Everything will look obvious after the fact. The fact that stocks have rocketed higher and interest rates fell like a rock in 2019 feels pretty obvious in hindsight. Who couldn’t have seen this coming what with all the central bank easing? Hindsight makes the past look more explainable than it actually was while uncertainty seems to always be at an all-time high about what’s going to happen in the future. But that’s always been the case and will always be the case. No one can predict the future but we can all craft beautiful narratives about the past. Whatever 2020 has in store for us, it will only be clear with the benefit of hindsight.
No matter who you are or what stage of life you are in 2019 was a year to remember. We all know the markets had a good year in 2019 but I am sure each and everyone of you made some new memories during the final year of this decade. I know my family and I are very grateful for all of the memories we were able to make this year and feel grateful to each of you for the trust you have instilled in Lockwood Financial Strategies. We will continue to work with you hand in hand towards your vision of retirement.
Be on the lookout for next week’s Facebook post 4 concerns for 2020. 1) Potential War and the historical effects on the market 2) Donkeys, Elephants, Bears and Bulls (Election) 3) A historically low risk asset I think could lead to the next market crash.
To see the post be sure to like and follow my new facebook page. You can click the link below:
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
|Philip Lockwood | Founder + Managing Partner|
|Address: 3100 Ingersoll Ave. Des Moines, IA 50312|
Website: Lockwood Financial Strategies
Securities offered through Parkland Securities, LLC, member FINRA (FINRA.org) and SIPC (SIPC.org). Investment Advisory services offered through SPC, a Registered Investment Advisor. Lockwood Financial Strategies, LLC is independent of Parkland Securities, LLC and SPC