Financial Markets Scorecard 2019

Financial Markets Scorecard 2019

$SPY $SPX

On 3 January, the S&P 500 sank 2.5% when Apple (NASDAQ:AAPL) warned of sagging demand for the iPhone, an inauspicious start to Y 2019 following a 14% Fed hammering in last year’s Q-4.

On 4 January, Fed Chairman Powell said the central bank would be “patient” with its interest rate policy following 4 increases in 2018. The S&P 500 soared 3.4% and by the end of the month was up nearly 8%.

January’s swing helped set the tone for a year in which the market responded to every downturn with a more sustained upswing.

Along the way, stocks kept setting records all year long.

By its final policy meeting in December, the Fed had completely reversed course and cut rates 3X in what Chairman Powell called a pre-emptive move against any impact a sluggish global economy and the US-China trade dispute might have on US economic growth. The stock market approved of the Fed’s actions.

Investors’ uncertainty over trade policy eased by December as Washington and Beijing reached an interim agreement that averted a new round of tariffs on $160-B worth of Chinese imports and reduced existing import taxes on about $112-B in other Chinese goods.

Investors appeared happy to have a de-escalation in trade tensions now and push off lingering concerns until Y 2020.

Through it all, the Us economy and consumers’ appetite for spending remained resilient, supporting the market’s record-shattering, Santa Claus rally.

Investments around the world were winners in Y 2019 as central banks unleashed more stimulus to bolster the global economy against the vice turned on China by President Trump’s tariffs.

Not only did Us stocks rise, so did high-quality bonds, low-quality bonds and foreign stocks.

Among the few losers were junk bonds with the very lowest credit ratings, but a better performance from bonds with bad but not the worst ratings meant high-yield indexes still generally made gains.

The US economy withstood a number of challenges in Y 2019.

President Trump’s trade dispute with China intensified as both sides increased tariffs. Fears of recession spiked in late Summer and fall as exports fell and businesses, facing higher costs on imported goods, cut back spending on new machinery and equipment.

Overseas economies stumbled, with Germany nearly falling into recession and growth in the UK slowing amid Brexit uncertainty.

Still, the US consumer kept spending as the unemployment rate hit a 50-year low and wage growth picked up for workers outside managerial ranks.

For IPOs Y 2019 was like a year in Hollywood

There were some mega successes and some notable DOAs. Ride-hailing giant Uber and rival Lyft were huge disappointments. Video-conference company Zoom and workplace messaging company Slack each soared on their 1st day of trading, but while Zoom kept zooming Slack slacked off after that. For non-tech companies, Beyond Meat and its plant-based burgers hit the spot while SmileDirectClub produced mostly frowns. WeWorks’ botched IPO signaled a change in IPO investors’ mindset.

Tech stocks soared in Y 2019 and far outpaced every other sector in the S&P 500.

Chipmakers, including Advanced Micro Devices and Lam Research, made some of the biggest gainers. Apple and Microsoft had their biggest share gainers in a decade and each topped $1-T in market value. Energy stocks gained the least amid concerns that oil supply is outpacing demand.

Corporate profits slowed in Y 2019, a year after a big tax cut helped juice results.

On Top of no longer getting the benefit of the 1st year of lower tax rates, a slowing global economy weighed on company revenues.

If S&P 500 companies end up reporting 4 Qs running of declines for Y 2019, as analysts expect, it would be the 1st time that’s happened since Ys 2015-16. As usual, analysts tend to set low expectations that most companies are able to beat, so investors are not panicked by the slower profit growth.

The practice of paying money to lend money has become more common around the world, $13-T in bonds globally had negative yields as of November, according to Deutsche Bank.

Much of that total is from Japan, France and Germany, countries that account for nearly a 25% of all the world’s bonds. It’s the result of shock-therapy by the ECB and others to try to jolt their economies and inflation higher.

The Fed changed course on interest rate policy this year, cutting its benchmark rate 3X after more than 2 years of increases. Chairman Powell portrayed those cuts as “insurance” against a slowdown resulting from weak global growth. Prior to late Y 2015, the Fed had been keeping rates at a record low near Zero to stimulate the economy. In December, the Fed said it was prepared to keep rates low at least through next year. The Trump Influence is working.

A strong labor market and a steady decline in mortgage rates stoked demand among would-be homeowners this year, driving US home sales higher. A persistently limited supply of previously occupied homes for sale at a time when millennials are increasingly seeking to become homeowners also helped to stoke demand, even though affordability remained a challenge in many markets. The housing trends favored US homebuilders, whose shares surged well above the broader market. This is a Key economic driver

Retailers had a mixed year as they continued beefing up their online sales strategies due to declining foot traffic.

Department stores, and Macy’s in particular, fell sharply. Specialty retailers did much better, with electronics retailer Best Buy, car dealership chain CarMax and home improvement retailers Home Depot and Lowe’s among those making sharp gains.

As this year wound down, retailers were hoping that low unemployment, higher wages and the record-setting stock market would translate into robust holiday shopping. It did.

Plant-based meat has gone mainstream.

Beyond Meat, which makes burgers and sausages from pea protein, had one of the most successful IPOs of the year. Burger King’s soy-based Impossible Whopper was a big hit. Tyson Foods, Nestle and Kellogg all introduced plant-based meats. Health and animal welfare concerns are driving the trend. US plant-based meat sales jumped 10% this year, to nearly $1-B, traditional meat sales rose 2% to $95-B in that same time, Nielsen says. For me I only eat Real food.

Have a terrific Holiday weekend

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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