2019 Highlights and Reflections:
Wow, 2019 has been quite the year for the stock market. After briefly entering bear market territory at the tail end of 2018, markets spent the first few months of 2019 recovering from that pullback. As we close out 2019 and the 2010s decade at all time stock market highs, we want to look back on this past year to reflect on the highlights and the learning opportunities. This is important as we prepare for the next decade and the start of an election year. (For the highlights, go ahead and skip to the end)
Much of the volatility in the market over the past year or two was in relation to the China trade war and the moves of the Federal Reserve. As we discussed in our August Market Update these were not independent variables. Trade policy and the negative effects were frequently discussed during the press conferences after the FOMC (Federal Open Market Committee) meetings. As we anticipated in August, the Fed has now cut rates two more times since the July meeting and the narrative on trade has continued to improve. With the Fed providing economic support and the improvement in the China trade negotiations, uncertainty has waned, and this has been positive for the market.
Let’s take a look at a chart from mid-year 2017 to the end of June 2019, and notice the impact of the trade war on the stock market.
Do you remember when President Trump announced the beginning of the trade war with China? We certainly do – you can see the resulting sell-off that happened in the first and second weeks of February 2018. From that point on the S&P 500 traded within a channel that last roughly 18 months, between the $2,600 floor and the $2,950 ceiling. Apart from the Fed induced selloff in December 2018 we can see multiple occasions where buyers came into the market as it approached the $2,600 level and sellers won the days when this index approached the $2,950 level. This buying and selling behavior is indicative of a floor and ceiling and this defined the range that we traded in for 18-20 months.
As you can see above, in the 4th quarter of 2019 we have finally broken out of that trading range and have frequently carved out new stock market highs since then. With a Phase 1 trade deal coming together and an accommodative Fed, the headwinds for the market have dissipated and we’ve seen the resulting price appreciation. So that begs the question, can the market keep going up from here?
Outlook for 2020
Contrary to last December, when we believe tax harvesting was taking place, resulting in an over exaggeration of selling, we think many investors are currently reluctant to sell and trigger capital gains for 2019. Taking this into consideration, we do anticipate some profit taking early in 2020 and our investment strategies are prepared for that.
2020 brings yet another election year, so what does that mean for your investments? Let’s consider some historical data. Of the 23 election years since 1928, all but 4 of them have been positive years for the S&P 500. This is a neat one-pager that provides a good visual for the election years and corresponding market returns. Note that it’s missing the 2016 election year, in which the S&P 500 was up roughly 9.5%. It isn’t wise to assume that what’s happened in the past will predict the future, however, it is helpful to take note of historical data to help guide decision making.
We believe once the Phase 1 trade deal is signed and companies are better able to understand the playing field, capital spending will revive, and we think this will continue to drive the expansion. At least until the 2020 election takes center stage. The primary risk from the election being a complete U-turn in regulatory and tax policy.
We do know one thing, at any given time, there are always several good reasons not to invest your money in the stock market. 2019 is a perfect example, many were calling for a recession in 2019 due to the yield curve inversion and an all-out trade war between the world’s two largest economies was imminent and yet we are finishing a year where the various indexes are up between 18-35%. This is a testament to how important it is for investors to stay the course and be patient if they want to win in the long term. When there are so many factors out of our control, it’s important to focus on the things we can control. Things like being invested in a strategy that fits your risk tolerance and identifying and remembering what the long-term goal for your money is.
Highlights of 2019
$0 commissions for online exchange-listed stock, ETF, and option trades
SECURE Act (Setting Every Community Up for Retirement Enhancement)
Increased IRA contribution limits.
What does $0 commission mean? In the past, TD Ameritrade would charge a commission of $6.95 per trade for stocks and ETFs. Based on historical standards, that is an incredible price. However, there has been a race to $0 going on in the brokerage industry for quite some time now, and we’ve reached the finish line sooner than we had anticipated. We are thrilled about it! As active managers, this is a huge advantage for how we manage money, and in turn is a HUGE benefit to our clients. This enables us to rebalance our client’s portfolios more frequently and more precisely because we don’t have to worry about the trading fees watering down returns when we do the rebalancing. It also allows us to be more nimble – we no longer have to navigate decisions through the filter of whether a trade is worth making in light of the commissions that will be charged. This wasn’t ever a major factor, but it sure is nice to have it eliminated.
This year we continued to develop and enhance our investment strategies and would love to tell you, our clients, about these developments. Be sure to ask about them if you have a review scheduled, and if not feel free to schedule a review with us if you’d like to learn more.
The SECURE Act (Setting Every Community Up for Retirement Enhancement) has several rule changes. The most notable for our client’s being that RMDs (Required Minimum Distributions) will start at age 72 beginning in 2020 instead of age 70 ½. In 2020, this new rule applies to everyone who did not already turn 70 ½ in 2019.
IRA Contribution limits for 2019 increased by $500 for both Traditional and ROTH IRAs
Under age 50 – New limit is $6,000 per year, instead of $5,500.
Age 50 or older – Catch up contrition of $1,000 means your New Limit is $7,000 per year, instead of $6,500.
We hope this post has been informative and useful. As we move into 2020, we want to encourage you to focus on the things that are truly important and meaningful in your life and to set goals that will reflect those priorities.
From the team at MFG Wealth Management, Inc.
HAPPY NEW YEAR!!!
Authored by: Michael McCracken CFP®, ChFC and Jeffrey Gardner, Financial Advisor The information presented above has been prepared for informational purposes only and the commentary represent the opinions of the author and are subject to change at any time due to market or economic conditions or other factors.