INSUBCONTINENT EXCLUSIVE:
NEW YORK: The out sized rally in the US stock market this year may give way to a more muted performance in 2020 if history is any guide.
The
benchmark S-P 500 is up nearly 28% for the year, which if the market closed this week for the year, would mark the second-best annual
performance for the index since 1997.
However, investors who are hoping the rally will continue charging ahead through next year may be
The S-P 500 has returned an average of 6.6% in the year following a rally of 20% or more since 1928, slightly below the 7.6% return in all
years, according to research from Bespoke Investment Group.
Fund managers and strategists say there are several reasons to believe that the
stock market will not continue on a path of notching double-digit annual returns like it did during the late '90s tech bubble.
"We're up a
lot this year, but we had a historically bad 4th quarter last year," said Ryan Detrick, senior market strategist for LPL Financial
"This isn't because of spectacular growth in the economy but the market realizing that we're not going to have a recession."
The S-P 500
posted its biggest drop since the 2008 financial crisis last year as investors worried that the trade war between the United States and
China would push the global economy into a recession
The Federal Reserve's decision to change course in early January from its path of raising interest rates helped fuel the rally in the
stock market this year.
The Fed also helped spark a bond rally that pushed 10-year Treasury yields near historic lows and boosted
dividend-paying stocks, further pointing to concerns about the strength of the US economy, said Liz Ann Sonders, chief investment strategist
at Charles Schwab.
"There are not a lot of investors in the bond markets losing their shirts because the economy is running ahead of
expectations," she said.
The November presidential and congressional elections will likely weigh on politically sensitive sectors like
healthcare as 2020 progresses, Sonders said, adding another market headwind that could prevent another string of outsized gains like the
late 1990s.
The year that was21 Dec, 2019For all the angst about trade wars, geopolitics and a sputtering and overly indebted global
economy, 2019 might just be the best year investors have ever had
Global markets in 201921 Dec, 2019The numbers are staggering
Global stocks have piled on more than $10 trillion, bonds have been on fire, oil has surged almost 25 per cent, former crisis spots Greece
and Ukraine have top-performed, and even gold has sparkled.
Wall Street and MSCI's near 50-country world index have both stormed to
record highs after 30 per cent and 24 per cent leaps
Europe, Japan, China and Brazil are all up at least 20 per cent in dollar terms too
Not exactly shoddy.
A mirror image of 2018, when almost everything fell? Perhaps
But there have been a couple of important drivers.
One was China showing it was serious about stimulus for its $14 trillion economy
down a spike in money market rates that some suggest could presage a fourth round of quantitative easing asset purchases.
US Treasuries vs
German Bunds21 Dec, 2019That Fed shift and the worldwide blizzard of rate cuts that have come since have fired bond markets up like a
The yield on 10-year debt dropped below zero percent for the first time since 2016 in March and dived as deep as -0.74 per cent in
September.
Performance of commodities21 Dec, 2019In commodities, oil has raced up almost 25 per cent following its best first quarter since
a top three currency.
Metals have had a more mixed time
Copper is only 4 per cent higher after buckling badly when trade tensions flared in the middle of the year, and aluminium is down 2 per cent
But palladium, used in car and truck catalytic converters, has boomed 55 per cent, while gold has had its best year since 2010 with a 15 per
skimpy in comparison to Californian video streaming darling Roko (ROKU.O), whose shares have risen 440 per cent this year.
Fangtastic21
Dec, 2019Tech has remained top more broadly
leap this year.
Facebook (FB.O) has surged 57 per cent, Microsoft (MSFT.O) 53 per cent, Google (GOOGL.O) 30 per cent, Netflix (NFLX.O) 24
per cent and Amazon (AMZN.O) 19 percent
Bitcoin was up over up 260 per cent in June but it has been hauled back to around 85 per cent.
Riskier high-yield debt, corporate bonds and
Now we have real legitimate companies but there's not the same sign of excess valuation," she said.
Few on Wall Street expect a bear
There are few signs of a recession looming in the year ahead, while the market has seemed unfazed by issues such as President Donald Trump's
impeachment or ongoing trade tensions, said Jonathan Golub, chief US equity strategist at Credit Suisse Securities.
"Given historically
low interest rates and risk premiums, we believe valuations have further to run," he said
He added that he expects the S-P 500 to end 2020 near 3,425, a roughly 7% gain from its Thursday trading price.
Investors may realize larger
gains by investing in smaller companies next year, said Steven Chiavarone, a portfolio manager of the Federated Global Allocation
fund.
Large-cap stocks in the S-P 500 are over-valued compared with the smaller companies in the Russell 2000 index, he said
At the same time, the Russell 2000 slightly under-performed the larger index this year by posting a 23.2% gain, leaving it primed for a
"catch-up trade" given that smaller companies tend to benefit more from low interest rates, he said.
"We think there's a chance that you
will see upside surprises from earnings next year and that could draw investors back to an asset class they've been overlooking," said