Oh what a year it was for stock market investors as 2019 turned out to be a year in which it was hard to lose money in the markets, no matter how aggressive or conservative your portfolio. December was another solid month for stocks with all the domestic and international indexes we follow up strong. Commodities caught a late year bid. Bonds, strong all year, took a breather in December barely changed, as the dollar ended the year on a weakness.
U.S. & International Stock Index Returns
|Index December 2019 Year-to-Date|
|Dow Industrials 2.09% 22.34%|
|S&P 500 3.58% 28.88%|
|S&P 400 (Midcap) 3.18% 24.05%|
|S&P 600 (Small Cap) 2.90% 20.48%|
|MSCI World 3.23% 24.91%|
|MSCI EAFE 3.52% 18.38%|
|Bloomberg Agg. Bond 8.80%|
|CRB Commodity Index 9.41%|
|US Dollar Index 0.30%|
All data as of 01/02/2020, Source: Wells Fargo Investment Institute. [Wells Fargo Investment Institute, Inc. is a registered investment advisor and wholly-owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.]
This year has been one for the books as the equity markets had their best performance since 2013. In the month of December stock indexes across the board – large cap, mid-cap, small cap, international – bounded higher. As impressive as December was from a total return perspective, what makes December different than the previous 11 months is that the November break above previous chart resistance held firm (chart #1). Very impressive action to close out the year.
In December the bond market basically traded water with yields rising slightly on the 10-year Treasury and returns essentially flat.
All year we have been talking about not if, but when the strength of the US Dollar would break. In December we have what appears to be just that moment. In early December the US Dollar Index broke below support levels from the uptrend that started in April 2018 (chart #3). The start date is important as the dollar strength started right after the Trump Administration announced the start of the trade war with China. We have stated on numerous occasions our belief that the dollar would remain strong until there was some kind of resolution to the issue, even if temporary.
In early December, talk of a phase 1 agreement between the US and China began to be seriously discussed. At the same time the dollar slipped below the uptrend line, retested that level and failed, closing the month at 96.06, well below where it started the month. In our opinion, as long as the trade war is put on hold the dollar will continue to weaken.
After a very productive November the CRB index confirmed the technical breakout after testing the downtrend line at the start of the month (Chart #4). In total the index gained 5.37% for the month on the strength of both oil and gold..
Year Review 2019
For investors of all stripes 2019 will go down as one to remember with stocks, commodities and bonds all posting strong, positive gains. US-based stock indexes generally did better than their international counterparts as the S&P 500 increase by just under 29% and the Dow Industrials Average increased north of 22%. Yet at more than 18% return for the year, the MSCI EAFE (international stock index) gave little reason for disappointment.
In bond land, much to the surprise of most everyone, yields turned lower after predictions of a higher interest rate environment. Lower rates generally lead to higher bond prices and gains for investors. In real terms, the Barclay’s Aggregate Bond Index was up 8.8% this year.
Commodities were up and down over the previous 12 months but ended the year on solid ground. The CRB index was +9.4% in 2019. Gold (and other precious metals) notably returned 18% for the year. Not to be outdone, oil was up more than 30%.
As we do every January, we will be publishing our thoughts on 2020 in the coming weeks. Being a presidential election year, it should be interesting. Given the economic issues facing the global economy it should be interesting. So check back with us soon to get our thoughts on all things 2020.
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Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.
All investing involves risks including the possible loss of principal invested. Past performance is not a guarantee of future results.
Index returns are not fund returns. An index is unmanaged and not available for investment.
Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted index of 30 “blue-chip” industrial U.S. stocks.
S&P 500 Index: The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock’s weight in the Index proportionate to its market value.
S&P Midcap 400 Index: The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between the S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.
S&P Small-Cap 600 Index: The S&P SmallCap 600 Index consists of 600 domestic stocks chosen for market size, liquidity (bid-asked spread, ownership, share turnover and number of no trade days) and industry group representation. It is a market value-weighted index (stock price times the number of shares outstanding), with each stock’s weight in the index proportionate to its market value.
MSCI World Index: The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance.
MSCI EAFE® Index: The MSCI EAFE Index is designed to represent the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the U.S. and Canada.
Bloomberg Barclays U.S. Aggregate Bond Index: Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based measure of the investment grade, US dollar-denominated, fixed-rate taxable bond market.
NASDAQ Composite Index: The NASDAQ Composite Index measures the market value of all domestic and foreign common stocks, representing a wide array of more than 5,000 companies, listed on the NASDAQ Stock Market.
Russell 2000® Index: The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents
Technical analysis is only one form of analysis. Investors should also consider the merits of Fundamental and Quantitative analysis when making investment decision. Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future.
Stocks offer long-term growth potential, but may fluctuate more and provide less current income than other investments. An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations.
Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility.
Investments in fixed-income securities are subject to market, interest rate, credit and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the bond’s price. Credit risk is the risk that the issuer will default on payments of interest and/or principal. The risk is heightened in lower rate bonds. If sold prior to maturity, fixed income securities are subject to market risk. All fixed income investments may be worth less than their original cost upon redemption or maturity.
Investing in commodities is not suitable for all investors. The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. The prices of various commodities may fluctuate based on numerous factors including changes in supply and demand relationships, weather and acts of nature, agricultural conditions, international trade conditions, fiscal monetary and exchange control programs, domestic and foreign political and economic events and policies, and changes in interest rates or sectors affecting a particular industry or commodity. Products that invest in commodities may employ more complex strategies which may expose investors to additional risks, including futures roll yield risk.
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Robert I Cahill, Managing Partner Rob.Cahill@wfafinet.com
Jeffrey T. Bogert, Partner
Jonathan D. Soden, Partner Jon.Soden@wfafinet.com
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