2020 Market Update
“The Fed is very smart, but it doesn’t run the markets. In the end, the markets will run the Fed. The markets are bigger than any man or any group of men. The markets can even break a President.” – Richard Russell (Dow Theory Letters)
What a difference a year makes. Last year we saw some jarring volatility and there were a million different reasons why the bull market was over and that we were going into a recession. Worries about rising interest rates, slowing economic growth, an escalating trade war, and an aging bull market to name a few. Yet, despite all of the negatives, the market surged right back and now with only a few days left in 2019, this year will go down in the books as a strong year. It will likely to be the best since the 29+% returned by the S&P 500 in 2013 (Dorsey Wright & Associates). The market has seen strong gains thus far in 2019, and evidence suggests that this trend could continue based on historical indicators. Of course, there are always risks and 2020 will have some familiar risks and maybe even some new ones.
2019 will go down as a banner year for the stock market. Not only are US Equities the number 1 asset class, they are the number 1 asset class by a wide margin when looking at relative strength buy signals. The US remains the safest place to invest in equities and that shouldn’t come as a surprise. Our country has a sound legal system, a strong currency, and has not been affected as negatively in the trade war as China.
When looking at the graph above, the asset classes of US Equities, International Equities, and Commodities are what we call “risk on assets” and will generally perform better during bull markets. 2019 was a good year for precious metals which fall under commodities. 2019 was also the best year for gold in 9 years and will most likely end the year up around 15%, with many gold stocks posting even better returns. Low Interest rates and negative yield have investors scrambling for safer yields. This has been a large driver of utilities and dividend paying stocks.
Technology continues to sit firmly in first place with 232 tally signals and has actually gained two new signals which strengthens the overall case for this leading sector. Technology has held the top position in the DALI US sector ranking since April 2017 and has a firm lead on it’s competition. Technology, industrials, and financials have been the strongest sectors with quite a bit of momentum in 2019. Meanwhile, there has not been much rotation in the basement of the ranking as consumer noncyclicals, basic materials, and energy all reside at the bottom. Energy, which has ranked dead last since November 2018 as supply has been much greater than demand.
The US economy continues to remain strong as it is still adapting to lower tax rates and monetary policy remains loose. After the November jobs report in which 266,000 news jobs were added, the unemployment rate dropped to 3.5%, a fifty-year low. Despite uncertainty in the trade front and slowing growth globally, the labor market and the American consumer have remained strong. The home building industry remains strong as builders continue working to build enough homes to keep up with population growth. Risks for a recession remain low but growth may be tempered as we enter the uncertainty of an election year.
Election years can be tricky for investors, as changing political dynamics and uncertainty about future policies make it hard for corporations to make riskier business decisions and other long-term commitments. With the impeachment business going on in Congress and the unreliability of polling, no one can be sure if President Trump wins reelection or if one of the many democrats win. In short, there is a lot of uncertainty. There are many issues and things to watch for in the 2020 election that will have potential impacts to the market. I will write a more detailed commentary later in 2020 as we get closer to the election. In the meantime, impeachment has had no impact on the markets and will most likely result in a quick acquittal in the Senate.
One of the biggest inhibitors to making wise financial decisions is letting emotion get in the way. The last time we had a Presidential election, many investors were left out due to making brash decisions based on personal bias. I can’t tell you what will happen next time, but we here at Carlson Asset Management will continue to analyze all of the facts and data to help you make smart, unbiased, unemotional financial decisions – both this year and beyond. As always, please let me know if there is anything I can do for you. Our office is open through the New Year and welcome you to stop by or give us a call. If you know anyone who you think could use our services or would like a second opinion, don’t hesitate to give them our phone number.
I hope you have a Merry Christmas and a Happy New Year!
Bruce Carlson, CFP®
Carlson Asset Management
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.