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Quarterly Market Outlook: Q1 2020

Greg Carr, Jan. 9, 2020


Quote for the Day:  “You make a living by what you get. You make a life by what you give.”  -Winston Churchill


Summary: Stocks did extremely well in 2019. But the stock market may be a bit ahead of itself, and global and U.S. economies are cooling. Markets are likely to be positive in 2020, but “bumpy” as they settle back into more normal valuations, the economy cools, and the election cycle heats up.

Review: Strong Returns in 2019

U.S. markets did extremely well in 2019 despite a bumpy road to get there. The S&P 500, which represents U.S. Large Company (“large-cap”) stocks, finished the year up 31.5%. Small-caps, foreign stocks, emerging markets, and commodities, which are all included in diversified portfolios, trailed the S&P 500 but still showed nice gains. Growth stocks outpaced value/dividend stocks again this year. Real Estate, which was added to our managed/advisory portfolios in 2019, was one of the top performing asset classes for the year. Bonds also did relatively well as the Federal Reserve lowered rates, causing many bond prices to rise. The U.S. economy is now in its 11th year of expansion, the longest on record.

Outlook: Slowing Economy and Bumpy Markets

The economy that powers the markets looks better now than in early 2019. But the long-term trend still appears to be slowing, despite the stock market’s strong recent performance. The Conference Board’s Leading Economic Index® (LEI) for the U.S. declined slightly again this past month. And most economists in the Wall Street Journal’s most recent survey and the National Association for Business Economics’ (NABE) most recent survey see slower growth ahead.

Does this mean a recession is just around the corner? Probably not. Barring any major geo-political issues, most economists in the NABE and WSJ surveys agree a recession is not likely before 2021 or 2022. Positive tailwinds include low interest rates, positive steps with Brexit, the global growth outlook, and steps toward a trade policy resolution. But a war with Iran or trade policy flare-up could bring economic storm clouds.

Markets are likely to be positive in 2020, but “bumpy” as they settle back into more normal valuations, the economy cools, and the election cycle heats up.

Volatility and recessions are part and parcel of long-term investing. If you have a retirement plan and a managed portfolio with us, it has been designed with this in mind. But If you are concerned about market volatility or are in or near retirement and have not met with us in the past year, now is the time to do a thorough review of your plan, risk tolerance, and portfolio strategy. It is better to err on the side of caution and to prepare beforehand rather than to react after.

If you would like to discuss this article, I can be reached at 316.440.2550