Stock markets in the U.S. and around the globe turned in a fantastic 2019, driven by U.S. equities, specifically large-cap U.S. equities. And along the way, 2019 brought plenty of records, including:
The major markets around the world put up some impressive numbers in 2019, with the MSCI EAFE Index just shy of a 20% return; the DJIA north of 20% and both the S&P 500 and NASDAQ up more than 30% on the year. And interestingly enough, most markets traded sideways from the April to September time frame but rose significantly to close out the year – a marked departure from the end of 2018.
The equity and bond markets had a lot to digest in 2019: solid corporate earnings, continued historically low unemployment numbers, rising wages and no significant escalation in trade wars between the U.S. and China, the U.S. and Europe and the U.S. and Mexico/Canada. But there was one huge theme influencing the upward momentum more than others: shifting global central banks’ policy (namely the Federal Reserve and the European Central Bank) with respect to further monetary stimulus (i.e., cuts to short-term rates). And while the ongoing trade saga between the U.S. and China was never far from front-page news, the pivot from the Federal Reserve was much more impactful.
A rising tide lifts all boats and that’s certainly true for 2019 as every single one of the 11 S&P 500 sectors rose. But some boats rose a lot higher than others and most sectors underperformed the broad-based S&P 500 index, with 8 of the 11 failing to keep pace with the Index.
As it did for most of the year, the Information Technology was the run-away leader with a whopping 50%+ return on the year whereas the Energy sector turned around in the fourth quarter and scraped out an 11%+ gain to finish at the bottom of the pack. The Financial Services sector outpaced the S&P 500, fueled by a very accommodative Federal Reserve whereas uncertainty caused the Health Care sector to drift lower throughout the year and underperform the S&P 500 by a third.
Here are the sector returns through the end of December 31, 2019:
| S&P 500 SECTORS | 2019 |
|---|---|
| Health Care | 20.80% |
| Consumer Discretionary | 27.90% |
| Industrials | 29.30% |
| Financials | 32.10% |
| Information Technology | 50.30% |
| Materials | 24.60% |
| Energy | 11.80% |
| Consumer Staples | 27.60% |
| Communication Services | 32.70% |
| Utilities | 26.40% |
| Real Estate | 29.00% |
| S&P 500 Index | 31.50% |
This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results. Source: Standard and Poor’s
Strong performance in 2019 was not confined to the U.S., however, as most global markets also turned in a positive year. Investors saw equities in developed and emerging markets rally, and the difference between growth and value widened throughout the year. Further, small caps underperformed their large-cap counterparts most of the year.
| 2018 | 2019 | |
|---|---|---|
| Barclays Global Aggregate | -1.20% | 6.80% |
| FTSE NAREIT Global Real Estate Investment Trusts | -4.10% | 24.40% |
| MSCI World Growth | -5.10% | 34.10% |
| MSCI World | -6.90% | 28.40% |
| MSCI World Value | -8.70% | 22.70% |
| MSCI Emerging Markets | -9.70% | 18.90% |
| Bloomberg Commodity Index | -11.20% | 7.70% |
| MSCI World Small Cap | -12.20% | 26.80% |
Source: Bloomberg Barclays, FTSE, MSCI, Refinitiv Datastream, J.P. Morgan Asset Management. All indices are total return in US dollars. Data as of December 31, 2019.
Sure, NASDAQ and the S&P 500 turned in impressive 2019 numbers, returning 36% and 30%, respectively. But equities in developed markets around the world (represented by the MSCI World Index) are up over 28% in 2019 too.
Interestingly, the fourth quarter of 2019 saw emerging markets come roaring back, led by the almost 12% returns for both the MSCI Emerging Markets and the MSCI Asia ex-Japan Indices. But those great returns were not enough to displace the S&P 500 from leading major global markets in 2019.
| World Market Returns | 2018 | 2019 |
|---|---|---|
| S&P 500 | -4.40% | 31.50% |
| UK FTSE All-Share | -8.70% | 19.20% |
| MSCI Emerging Markets | -9.70% | 18.90% |
| MSCI Europe ex UK | -10.60% | 27.50% |
| MSCI Asia ex Japan | -12.00% | 18.50% |
| Japan TOPIX | -16.00% | 18.10% |
Source: FTSE, MSCI, Refinitiv Datastream, Standard & Poor’s, TOPIX, J.P. Morgan Asset Management. All indices are total return in local currency, except for MSCI Asia ex-Japan and MSCI EM, which are in US dollars. Data as of December 31, 2019.
The dominant market news of the year – the pivot from the Federal Reserve and other global central banks – fueled equity markets and fixed-income markets alike.
The Federal Reserve, once the institution that rarely spoke, found itself in the news a lot this year.
And as if to put an exclamation point on the global central banks’ rate cutting theme, at the end of the year, the People’s Bank of China announced it would cut the reserve requirement ratio by 50 basis points, effective January 6th. The announcement is the eighth time that the People’s Bank of China has cut rates since early 2018.
With all the stock market records broken in 2019, it’s easy to forget the longer-term view, but we’re reminded of that as we enter a new decade. With a cumulative return of almost 250% over the past 10 years, the past decade's stock market has been very strong, but has actually ranked fourth among the past seven decades.
While most of us were not investing during the 50s, many of us remember the returns of the 80s and 90s and marveling at the cumulative 400% returns of those decades. But the past 10 years were still remarkable, highlighted by the fact that it was the only decade on record that did not register a recession and just the second decade that did not experience a bear market (remember the 90s?).
| Decade | Stock Market Return |
|---|---|
| 1950s | 486.10% |
| 1960s | 112.20% |
| 1970s | 77.00% |
| 1980s | 403.80% |
| 1990s | 431.40% |
| 2000s | -9.10% |
| 2010s | 249.30% |
Source: Bloomberg
Some are predicting the upward trend to continue into 2020 whereas others are predicting that the markets will retreat. No matter your outlook, the direction of the markets will be influenced by the same long-term and cyclical trends that have influenced the markets since the beginning – corporate earnings, interest rates and various macroeconomic data, including employment and wage growth numbers. And trying to predict the market performance for the next decade is even more foolish.
But one thing we know for sure is this: Past performance is no guarantee of future results. Ever.