Good 2019, Good 2020?

The year 2019 has been filled mostly with joy from a market perspective.  Most days, weeks, and certainly months you could look at your statement and feel quite good about the progress made.  So good, it leads many to ask whether the gifts the market has been giving can keep on coming or has the generosity run out?

To be sure, it has been a wonderful year for the markets, and that’s not just limited to the stock side.  Bonds have had quite the party as well, aided by a reduction in interest rates.  In 2019, we now took the lead for the longest expansion on record (see below).

 

As we come upon 2020, we enter a period of uncertainty.  After all, we have several factors at play, such as the ongoing negotiations related to Phase 2 of a trade deal with China, the “exit” of “Brexit” set to maybe actually happen this time (3.5 years after the initial vote), and our own elections in the U.S., to name a few.  However, the old saying reminds us the “Market climbs a wall of worry.”  The last few years have exemplified exactly that:

 

Election years are naturally filled with a lot of news that can create the wall of worry.  For quite some time this coming year, you won’t be able to turn on any form of media without being bombarded by something political.  Expect discussions, promises, debate, and theories to be presented by both sides of the aisle relating to many things, which if implemented, may or may not impact your investment portfolio.  Yet that has always been the case.  If we look at the returns of the market in election years over time, it turns out election years have historically given the market reasons to keep the holiday spirits bright (see below).

In reality, much more than politics goes into how the market performs.  The market, most of the companies that make up the market, and the dollars that are invested in the market, will be around for periods of time far longer than whoever sits in the White House for the next 4 years.  There are many reasons the market may continue to lengthen its longest streak ever, and if so, 2020 will add to the average statistics that have made elections years the gift that keeps on giving.

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^{Chart 1 – Source: Clearnomics, U.S. BEA, NBER.  Data through 12/15/2019.  Above numbers on X-axis represent months.} 

^{Chart 2 – Source: Clearnomics.  Charts the level of the S&P 500 Index.  Last data point 12/13/2019.}

^{Chart 3 – Data from 1928-2017 and from Dimensional Fund Advisors.  Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment. Actual returns may be lower. Source: S&P data © 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.}

^{The S&P 500 Index includes a representative sample of the largest 500 companies in the U.S.}