Market Update January 16, 2020
Unlike 2018 when the Grinch stole Christmas for investors, the Santa Claus rally lived up to expectations in 2019. The time period between Thanksgiving and New Years has historically been a very positive period for stock market performance resulting in it being dubbed the Santa Claus rally. However, stocks got crushed
at the end of 2018 in large part due to concerns that the Federal Reserve was being too aggressive raising interest rates, capping off a year in which the vast majority of asset classes posted negative returns. 2019 was the polar opposite with negative returns being scarce. The year ended on a strong note as trade worries ebbed and monetary policy remained favorable.
The S&P 500 was up 31.5% for the year, powered higher by technology stocks. Foreign stocks fared well too with the MSCI EAFE index of established foreign economy stocks up 22.0% and the MSCI Emerging Markets index up 18.4%. Bonds also had a great year courtesy of falling interest rates. The Bloomberg Barclays U.S. Intermediate Government/Credit Index rose 6.8% in 2019.
As I consider where the financial markets may be headed in the year ahead, I am seeing many conflicting signals. Even within singular gauges there are contradictions. A prime example is investor sentiment which can be a very useful contrarian indicator. As Warren Buffet is known to have said, be fearful when others are greedy and greedy when others are fearful. However, when I look at various measures of sentiment, some are very bearish for stocks and some are neutral to positive. The same can be said for stock valuations and U.S. manufacturing. I am inclined to believe stocks are due for at least a pause. The S&P 500 in particular has gotten extended and even the recent escalation of conflict with Iran has failed to derail stocks. Stocks are continuing to rise as though there is no doubt as to who the next President will be, there will be no further
challenges with the U.S./China trade negotiations, there is no risk of inflation, corporate earnings will be better this year than last year, and so on. The news will eventually turn challenging, and it would be wise for investors to not have thrown caution to the wind.
As I noted in my blog on January 7, a few big changes were made to retirement plans by Congress late in December with the passing of the SECURE Act of 2019. The most significant change was in regards to the inheriting of retirement plans from people other than your spouse. Retirement plans and IRAs inherited after
January 1, 2020 must in most cases be withdrawn by the beneficiary within 10 years of the death of the owner. Forcing people to withdraw their inheritance from their parent’s or relative’s retirement plans within 10 years so the government can accelerate their collection of income taxes is not necessarily in the best interest of the American public. There were two notable positive changes as a result of the SECURE Act. There is no longer an age limit for people with earned income to fund IRAs, and the age at which people must begin drawing from their retirement plans was raised to age 72 from 70 ½. Refer to our blog on our website or contact our office if you would like more information. These changes will warrant a re-examination of the financial planning we do for our clients.
I wish you a happy, healthy, and prosperous new year. Do not hesitate to contact us if we can be of assistance.
Sincerely,
Glenn S. Rank, CIMA®
Certified Investment Management Analyst®
President
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The S&P 500 is an unmanaged index of 500 widely held stocks that’s generally considered
representative of the U.S. stock market. The MSCI EAFE index and the MSCI Emerging Markets index are unmanaged indexes compiled by Morgan Stanley Capital International that are generally
considered representative of the developed international stock market and emerging international stock market, respectively. International securities involve additional risks including currency fluctuations, differing financial accounting standards, and possible political and economic volatility, and may not be
suitable for all investors. Investing in emerging markets can be riskier than investing in well-established foreign markets. The Bloomberg Barclays Capital U.S. Intermediate Government/Credit Bond Index measures the performance of U.S. Dollar denominated U.S. Treasuries, government-related and investment
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