- Despite weakening economic data, financial markets delivered productive returns with stocks finishing 2019 near record highs
- With valuations above the historical norm, U. S. corporate earnings will need to exceed expectations for the stock market to continue moving higher in 2020
- Continuing geopolitical uncertainty is likely to lead to more financial market volatility in the year ahead
The financial markets in 2019 delivered some of the most productive investment returns we have seen in a decade. Last year began with a strong reversal of the steep decline stocks experienced in the fourth quarter of 2018, when it became clear the global economy’s growth was slowing. Counter-intuitively, despite this slowdown, stocks finished 2019 near record highs. Although we don’t expect a recession in the new year, we also do not expect the markets to earn returns close to last year’s results. Today, valuations are at the higher end of the historical norm and stocks may have moved too far, too quickly. The manufacturing and business investment (Cap-Ex) components of the economy have been struggling, which is the primary reasons U.S. CEO’s Business Confidence are at levels we haven’t seen since the 2008-2009 financial crisis. Fortunately, American Consumer Confidence remains near all-time highs, with unemployment residing at 50-year lows. U. S. corporate earnings will need to exceed expectations for the stock market to continue moving higher in the new year.
Our outlook for 2020 is mixed. The probability of geopolitical drama remains elevated as the China-US trade war and Brexit appear to be a long way from resolution. We are not likely to get clarity on trade uncertainty until the November election, at the earliest. The looming U.S. elections (with every House seat, 35 Senate seats and the Presidency on the ballot) is certain add to America’s political and social discord, while increasing the likelihood of more financial market volatility as the year progresses. Last week, Middle East geopolitics dramatically reappeared when Iraqi militias attempted to storm the American embassy in Iraq and the U.S. responded with a drone strike, eliminating General Qasem Suleimani, the Commander of Iran’s Quds Force.
Entering 2020, our diversified portfolios are prudently positioned to preserve your wealth when the next wave of financial market volatility reappears.