December – January 2020

U.S. Economic and Market Highlights

The Economy and Markets

  • The primary drivers of the markets in 2019 were: Interest rates, concerns about global growth and trade deals, and the continuation of consumer spending and strong corporate earnings.
  • Resulting returns in 2019 were very positive for equities and fixed income investments (see table below). At the end of 2018, the Federal Reserve put on hold any further interest adjustments. This turned out to be an incentive for other central banks to do the same, or to lower rates.
  • During the year Germany and Japan had negative interest rates for an extended period because of concerns about the slowing global economy.
  • The accommodative rate environment supported housing markets and consumer spending through lower mortgage rates which in return supported corporate profits.
  • Investors in bonds were seeking a safe haven against the potential for slower global growth and geopolitical risks, including the U.S. – China trade war.
  • By year-end, the U.S. economy (GDP) grew at a 2.1% annualized rate in the final quarter of 2019 and 2.3% for the full-year.
  • The International Monetary Fund (IMF) forecasted global economic growth in 2020 to increase 3.3%, up from 2.9% growth in 2019. The IMF projects slower economic growth in the U.S. and China and better growth in Europe and emerging markets outside China.
  • The new year started with new concerns including the coronavirus which has had a significant impact on China, where it originated, and has the potential for disrupting economic activity globally, especially relating to the travel industry and commodity prices.
  • In reaction to the news that the coronavirus has spread, the U.S. 10-year Treasury yield fell from nearly 1.90% to a multi-year low of 1.5%, the price of gold rose to its highest level since April 2013 at 1,594.50 per ounce, and the stock market index in China fell 8% on the first day of trading (February 3) after the Chinese New Year.
  • The optimal portfolios in 2019 were diversified with U.S. growth and value companies as both styles performed well at different times during the year, especially technology stocks which outperformed other sectors. Also, the value of investment grade corporate bonds and government bonds rose as interest rates declined.
  • One leading indicator of economic health that we are watching closely is the Purchasing Managers Index (PMI) which is used to measure manufacturing activity in many countries world-wide.
  • The Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) fell below a reading of 50 several months in 2019 for the first time since early 2016, which can be an indication of economic slow-down.

This communication was prepared for informational purposes only and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security/instrument or to participate in any trading strategy. Past performance is not indicative of future results.