2019 Recap and 2020 View
The markets gave us quite a ride in the last year of the decade. By the end of 2018, many investors were feeling snake bitten. However, the market roared out of the gate in 2019 and never slowed down. Large Cap US Stocks, as measured by the S&P 500 were up 9.07% for the 4th Quarter and 31.49% for the full year of 2019. We witnessed these companies continue to meet investors’ earnings expectations and manage their respective businesses well despite the uncertainty in the global economy.
The animal spirits we saw in Large Cap US stocks were just as strong in US Mid Cap Stocks and to a lesser extent, US Small Cap Stocks. The Russell Mid Cap Index was up 7.06% and 30.54 for the year, and the Russell 2000 Index was up 9.94% for the quarter and 25.52% for the year. With concerns about tariffs and global growth, the more domestically focused Mid Cap companies found their footing. In the last quarter the same was also true for Small Cap companies.
International Stocks did well in 2019, despite the view that the global economy was slowing down and the potential effect of tariffs on global trade. MSCI-EAFE Index was up 8.17% for the quarter and 22.01% for the year. In the 4th quarter Emerging Markets began to show signs of a rebound. The MSCI-Emerging Markets Index climbed 11.84% in the quarter, accounting for more than 60% of their returns for all of 2019 which was 18.42%. While these markets still have a long way to catch up the US Market off the bottom of the 2008-2009 low, we are still very cautious. The amount of uncertainty in Europe and Japan give us pause and while China and the rest of Asia appear resilient, we are also somewhat skeptical as to their growth prospects.
Bonds joined the party early in the year and were up 8.72% for 2019, but petered out in Q4, scoring only a measly .18% return for the quarter. Beginning the year, the long end of the treasury curve dropped fairly dramatically. The 10-Year Treasury Note started the year with a 2.66% yield, and inched up to 2.76% in January & February. In May, it began to fall, breaking through the 2.00% level in July and hitting a low point of 1.40% in August & September. It recovered a bit in the 4th quarter and ended the year at 1.83%. We don’t expect another big move in rates in 2020, and as such are positioned for them to trade in a range for the foreseeable future.
Looking forward towards the new decade we are cautious. Continued geopolitical uncertainty continues to weigh on investors. How a global economy that has spent 30 plus years integrating will respond to increasing nationalism is a challenge. While these are concerns, we still see optimism as more new technologies are created helping us to solve a wide variety of problems while increasing our efficiency. We continue to see companies innovate and create new tools for all of humanity.
We are still bullish on the US Economy and US Large Cap stocks. We favor stocks over bonds and US stocks over International stocks. In the US, our portfolios are overweight to Large Cap and Mid Cap stocks and slightly underweight to Small Cap Stocks. We will continue to look to find the best place to allocate our clients ‘capital in these markets.
In early June we extended the maturity of our bond portfolios from roughly 3.5 years to 4.5 years to take advantage of the falling longer bond yields. We continue to hold that average maturity but will act opportunistically to improve the credit quality of our bond portfolios in 2020.