The start of a new year is often a time for reflection. When we take the time to look back on the happenings during the past 12 months, we are reminded of all that can change in a year.

The beginning of 2019 looked fairly dismal with 3 main themes playing out in the market:

  • The stock market had just come off of its first negative return year in a decade
  • Worries about the global economy were surging due to the U.S.-China trade war
  • The Federal Reserve had just raised interest rates the previous month

The markets’ performance in 2019 displayed the difference a year can make. We saw twists, turns, trade wars, trade deals, and everything in between. Yet, none of these potential pitfalls could derail the stock market’s persistent upward trend. The steady march to new all-time highs lifted all major asset classes; even bonds registered impressive returns.

Now, we begin 2020 on the opposite end of the spectrum:

  • The S&P 500 index just recorded its best annual return since 2013
  • U.S. and China have agreed to and signed phase one of their trade deal
  • The Fed cut rates for the third time in 2019 at the end of December, which is quite a different message than the “autopilot rate hikes” that helped spur the December 2018 selloff

The Fed’s 2020 Policy

At their first policy meeting of the new year, the members of the Federal Open Market Committee (FOMC) decided to keep interest rates unchanged. Furthermore, they continued to indicate that they do not expect to raise interest rates in 2020. With the Fed’s supportive monetary policy, engineering a “soft landing” and further extending this current economic expansion is certainly a potential outcome.

Our Outlook: Neutral

The economy is slowing, but looks to be stabilizing. For now, our economic growth forecast suggests the U.S. will avoid recession in 2020, but below-average growth will persist. The economy remains on solid ground with healthy employment and low borrowing costs, which should sufficiently support growth.

Despite the strong performance in 2019, markets still face significant uncertainties, including:

  • The U.S. and China are continuing their trade negotiations
  • Concerns over slowing corporate earnings
  • Global tensions
  • U.S. election cycle
  • Recession worries
  • And most recently, growing fears of a spreading coronavirus in China and around the world

In sum, the economic expansion is long in the tooth with lots of catalysts for volatility. Following our disciplined investment process and responding to warnings from our quantitative risk management model will be imperative to successful investing in 2020.

How Can We Help?

At GGM, aligning your investments with the prevailing economic environment is just one of the ways we strive to add value to your portfolio. If you are concerned about whether your investments are primed for the current market and allocated to meet your objectives, we recommend our complimentary portfolio checkup. Contact us today!