Fourth Quarter 2019: The Year Everything Worked
What a difference a year makes. After 2018 ended with stocks in free fall, markets rebounded sharply in 2019, with broad market indices pushing new highs daily during the fourth quarter. Last year’s worries — trade, global growth, and tightening monetary policy — have each abated.
First to fall was concern for monetary tightening when the Federal Reserve first suggested a pause in rate hikes, then announced a single “insurance” rate cut in July, and ultimately cut rates three times in the second half of the year. Confounding underlying economic data supported the Fed’s policy reversal. Weak manufacturing and slow wage growth left policymakers puzzled even as the economy created jobs well in excess of steady-state levels.
Trade worries dissipated as two main narratives seemed to emerge throughout the year: either the United States and China are getting close to a trade deal, or there is an increasing likelihood that President Trump and China President Xi Jinping won’t escalate the trade war during the American election year. The election’s impact on the stock market is likely to be a common media theme in the upcoming year, but if history is any guide, listening to broad predictions about the direction of equity markets based on election outcomes is likely to be more harmful than helpful.
2019 market details will sound like a familiar refrain to most market followers. Value mostly underperformed (again). U.S. stocks outperformed international stocks (again). And interest rates, which according to prognosticators had nowhere to go but up, declined (again). May the next year, and decade, be as interesting as the last.