Market Monitor: December 2019 Update
Twice a month, we send clients this overview of the markets and roundup of key economic news stories. Similar to Altair Insight, it enables us to share our big-picture views while also highlighting select market returns and developments that we feel are important.
Headlines and Highlights
- Markets end 2019 with a flourish: Solid December gains capped a year of excellent returns for global markets, including one of the best years for stocks in the past decade. U.S. stocks led the way with a 31.4% return for the Standard & Poor’s 500 Index, while international developed stocks delivered 22.0% and emerging-markets stocks rebounded with a 12.1% fourth-quarter return (18.1% for the year). U.S. REITs were a close runner-up to stocks, while bond markets also posted strong 2019 performance.
- Trade deal signing promised next week: President Donald Trump said he will sign the first phase of a trade deal with China in Washington on January 15th, even as the exact terms of the agreement remained secret. The agreement reportedly calls for Beijing to buy more American farm goods in exchange for lower tariffs on some of its products. The signing would formalize a trade truce between the world’s two largest economies; Trump said he will travel to Beijing “at a later date” to begin talks on the second phase.
- U.S.-Iran conflict escalates with general’s assassination: Middle East tensions heightened, oil prices spiked 4% and stocks declined after a U.S. airstrike killed Iran’s most powerful military commander at the Baghdad airport. Tehran vowed “severe retaliation” for the death of Qassem Soleimani ordered by President Trump, who said Soleimani was plotting attacks on Americans. The new flashpoint raised the chances of further military confrontation between the two rival nations.
Selected Market Returns
Sources: Morningstar, Altair Advisers
- Geopolitical uncertainty has risen for the near term following the U.S. drone killing of Iran’s top general, raising concern about the level of promised retaliation and potential consequences for oil markets and the Middle East. While history shows that such escalations almost always cause volatility, they tend to be short-lived. It is too soon to anticipate a meaningful impact on markets or the global economy from this escalation. The backdrop for stocks and the outlook for improvement in global economic growth both remain favorable.
- U.S. stock prices are unlikely to match their 2019 performance after stronger-than-usual returns that have left prices fairly valued relative to historical averages. Viewed in tandem with the previous year’s losses, however, the market’s climb has not been excessive by historical standards. We anticipate additional market gains this year from modest earnings growth, although increased volatility and a temporary pullback at some point are likely.
- Bond markets also face challenges in duplicating 2019 returns but should remain stable with the lessened threat of a recession and tepid prospects for inflation and economic growth. Rates have risen since the trade truce was struck but we expect them to remain range-bound for the near to medium term.
- A comprehensive U.S.-China trade deal remains elusive even with the framework of a “phase one” agreement having been announced, leaving trade uncertainty as a continuing issue for businesses and global markets. However, with a trade truce in place, we believe the initial agreement will marginally boost business confidence and capital spending in 2020.
- The dollar’s strength against other currencies has ebbed since the end of September amid an improved outlook for a trade deal and we expect that trend to continue as global economic growth picks up. A weaker dollar would be positive for non-U.S. stocks, which have delivered strong results recently and outperformed U.S. markets in the fourth quarter.
The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice