What Drove the Markets?
Four factors influenced investment performance in 2019: a shift in U.S. monetary policy, the ongoing trade dispute between the U.S. and China, earnings, and the economy.
Stocks reached record highs in 2019. The S&P 500 climbed above 3,000 for the first time. The benchmark ended Friday’s trading session up 29.25% for the year. At Friday’s close, the Dow Jones Industrial Average showed a year-to-date advance of 22.95%, while the Nasdaq Composite was up 35.74% YTD. The MSCI EAFE index, representing foreign stocks, was up 18.10% YTD through December 27.
The Federal Reserve Eased
The central bank made three quarter-point cuts to the benchmark short-term interest rate in 2019. That was a change from 2018 when the Fed worked on normalizing monetary policy with interest rate increases while thinning its large bond portfolio.
By and large, investors welcomed the policy shift. At the end of 2018, there were concerns that the Fed’s effort to tighten the money supply had backfired, with higher U.S. interest rates impeding both the domestic and global economy.
The U.S. and China Trade Quarrel Cooled Down Slightly
In December, representatives from both nations agreed on a “phase-one” trade deal after a year-and-a-half of imposing tariffs on each other’s products. This pact, which is expected to be signed in 2020, is characterized as an initial step toward a larger deal.
In May, the U.S. put 25% tariffs on $200 billion of Chinese imports; a month later, China imposed a 25% import tax on $60 billion of U.S.-made goods reaching its shores. These tariffs may be reduced or removed as part of the phase-one deal. (Another $120 billion worth of Chinese goods are currently under a 7.5% tariff, reduced from 15% by the new agreement.)
Earnings Beat (Low) Expectations
Stock market analysts were pessimistic about corporate profits as the year began. With economies worldwide slowing down in 2018, year-over-year earnings growth for S&P 500 firms seemed poised to decelerate.
Deceleration was evident, but later in the year, many firms managed to exceed reduced estimates. According to stock market analytics firm FactSet, 75% of S&P 500 components beat earnings-per-share estimates in Q3, compared to a 5-year historical average of 72%.
The Economy Maintained Momentum
Gross domestic product came in at 3.1% in Q1, 2.0% in Q2, and 2.1% in Q3. Through November, nonfarm payrolls growth had averaged 180,000 per month during 2019. Manufacturing output varied, as CEOs were less certain about expansion and capital investments in the first half of the year; it declined in Q1 and Q2 before improving again in Q3.
The Conference Board’s consumer confidence index was at 125.5 in November, above its (revised) January mark of 121.7. Inflation stayed under 2% for most of the year before reaching a 12-month high of 2.1% in November.
Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act before Christmas, and President Trump signed it into law last week. This new law alters a key rule pertaining to traditional retirement accounts. It raises the age for Required Minimum Distributions (RMDs) from these accounts, from 70½ to 72. (If you are now 70½ or older, this change does not affect your scheduled RMDs. Only those who turn 70½ in 2020 or later are subject to the new rule.)
THE WEEK AHEAD: KEY ECONOMIC DATA
- Tuesday: The Conference Board publishes its last monthly Consumer Confidence Index of 2019.
- Friday: The Institute for Supply Management presents its December manufacturing index, a gauge of U.S. factory activity.
Source: Econoday, December 27, 2019
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.
“New Year’s Day is the first blank page of a 365-page book. Write a good one.”
– Brad Paisley
Recipe of the Week
Champagne Gummy Bears
[100 gummy bears]
- ½ cup champagne or sparkling wine
- 2 Tbsp. powdered gelatin
- 3 Tbsp. sugar
- A gummy bear mold (like this one)
- Pour the champagne in a saucepan over low heat and add the sugar and gelatin, whisking constantly. Continue until dissolved.
- Slowly pour the gelatin mixture into the gummy bear molds. Pro tip: use an eyedropper for more accuracy.
- Refrigerate or until the gummy bears have set, about 15 minutes.
End of Year Tax Tips for Small-Business Owners
- Claim 100% bonus depreciation for asset additions – If you have new or used property, you may be eligible for a first-year bonus depreciation. In other words, you may be eligible to write off some of your 2019 asset additions. The same rule may also be applicable for heavy SUV, pickup, or van purchases.
- Time your business income for tax savings – If you conduct your business using a pass-through entity, your share of your business’s income is passed through to you. This means that deferring income into next year makes sense if you expect to be in the same or lower tax bracket next year. The qualified business income from pass-through entities deduction can also help because deductions can be up to 20% of a pass-through entity owner’s qualified business income.
New Year’s Resolutions for Golfers
The new year means New Year’s resolutions. Instead of making general resolutions this year, make ones specifically focused on your game. Some fun and tactical examples include:
- Smile more. After all, you’re out there to have fun (even if you do shank the ball)!
- Visualize your name on your club’s Honor Board.
- Focus on your short game.
- Don’t lose your temper as easily.
- Lower your handicap.
- Improve your fitness. A well-played game happens on and off the course.
- Play more golf. This one’s simple.
- Take some lessons. Even the best golfers can benefit from some pro tips.
- Visit a new course. Bonus points if it’s in a totally different state or country.
- Golf with a new group of buddies.
- Increase your drive length.
- Nail your chip shots.
- Teach someone else how to play. We all started somewhere.
New Year’s resolutions are a chance for us to reflect on the past year and discover ways to be our best selves, both on and off the green.
Tip adapted from Golf Monthly
Intentions Versus Resolutions
Make a Green New Year’s Resolution
There are countless goals you can set for the new year, from losing a few pounds to spending more quality time with friends. If you want to make a resolution to be more environmentally friendly, here are some green New Year’s resolutions to start with:
- Bring your own reusable shopping bags everywhere you go. Many states ban or charge for disposable plastic bags, so this resolution will save you money as well.
- Cook from scratch more. Prepared food, either from the grocery store or from restaurants, usually requires a lot of plastic. Plus, it takes a lot of natural resources to get those prepared meals from the farm to the factory to your dining table. Cook from scratch more to reduce your carbon footprint (even better if the groceries are sourced locally).
- Avoid fast fashion. Mass-produced fashion in big-box stores might be affordable to the end consumer, but a lot had to go into those deals. In addition, a lot of these “fast fashion” pieces are made with harmful dyes, synthetic fabrics, and use a lot of resources to produce. Instead, buy second-hand and only invest in pieces you’ll love for a long time.
Tip adapted from Small Footprint Family