Data Source: FactSet
As a result of the strong labor market, U.S. consumers are confident and are clearly willing to spend. The economy added 266,000 new jobs in November, as the unemployment rate fell to 3.5% from 3.6% in October. On average, the domestic economy has created roughly 180,000 new jobs every month in 2019, well above what is needed to support demographic trends.
According to Adobe Analytics, Cyber Monday online sales hit a record $9.4 billion, up nearly +20% from a year ago. This follows the record $7.4 billion in Black Friday online sales, which represented an over +19% year-over-year increase.
The firm U.S. economy and a confident consumer could lend a degree of support to stock and bond prices through the rest of this month and into next year, despite other less certain macro conditions such as U.S./China trade developments.
Unresolved trade issues complicate the outlook. The U.S. and China may be headed for a longer-term economic cold war, and a further decay in trade elevates the risk of a global downturn. However, a more established trade truce (in which the threat of additional tariffs is reduced) could calm growth fears and lift market sentiment in 2020. This could help stabilize global growth and lift profits.
Heightened U.S. political anxiety creates periods of market volatility amid policy uncertainty. A contentious U.S. presidential election could magnify political divides and complicate the regulatory and business environment for large industry sectors across the economy. Markets tend to perform well in an election year, but it could be a volatile ride at times.
Geopolitical tensions rise. The trend toward more nationalistic social and economic policies could continue across key areas of the world. As Europe attempts to redefine itself in the context of Brexit, China grapples with ongoing social issues, and Iran and North Korea agitate, the U.S. may continue to take a "sideline approach" in areas where it does not directly need to engage.
Investors should continue to overweight U.S. assets, though an acceleration in growth and reduction in trade frictions next year could favor attractively priced foreign investments. Nevertheless, asset returns across categories in 2020 are very likely to be lower compared to 2019.
Business and investor confidence could ebb and flow based on changes in the trade and political environments. In our view, there is little room for stock multiples to expand from here without a material shift higher in profit growth next year. We expect U.S. companies in aggregate to post positive but modest profit growth in 2020, which could lend a degree of support for stock prices during periods of market turbulence.
Seek to hold quality companies in your portfolio and take a long-term approach to stock ownership. Target companies with strong profitability, competitive advantages and clean balance sheets. A stable/growing dividend is a plus in a low interest rate environment.
Within fixed income, focus on high-quality companies (e.g., investment-grade corporate debt) that offer financial flexibility to weather a market and economic downdraft. Avoid over-allocating to high-yield debt, which could face larger price declines if economic conditions dim. Total returns within fixed income may be limited to interest payments in 2020, with little opportunity for price appreciation given the current rate environment.
Our base case for 2020 calls for modest economic growth accompanied by low but positive market gains. However, the wildcards of trade and politics cast a decidedly large shadow over the outlook, in our opinion. The best defense against a wide range of potential outcomes is to stay diversified and understand your comfort zones with risk.
As of December 9, 2019
Data source: Morningstar Direct
Indexes are unmanaged and are not available for direct investment.
Standard & Poor’s (S&P) 500 Index
The S&P 500 is a basket of 500 stocks that are considered to be widely held. The S&P 500 index is weighted by market value (shares outstanding times share price), and its performance is thought to be representative of the stock market as a whole. The S&P 500 index was created in 1957 although it has been extrapolated backwards to several decades earlier for performance comparison purposes. This index provides a broad snapshot of the overall U.S. equity market. Over 70% of all U.S. equity value is tracked by the S&P 500. Inclusion in the index is determined by Standard & Poor’s and is based upon their market size, liquidity, and sector.
Dow Jones Industrial Average
The Dow Jones Industrial Average (The Dow), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.
Russell 2000 Index
The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set. The Russell 2000 includes the smallest 2000 securities in the Russell 3000.
MSCI EAFE Index
The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI EAFE Index consists of the following 21 developed market country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. As of June 2, 2014.
MSCI Europe Ex UK
The MSCI Europe ex UK Index captures large and mid cap representation across 14 Developed Markets (DM) countries in Europe. With 337 constituents, the index covers approximately 85% of the free float-adjusted market capitalization across European Developed Markets excluding the UK.
MSCI United Kingdom
The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market. With 109 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in the UK.
MSCI Emerging Markets Index
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 23 emerging market country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. As of June 2, 2014.
Bloomberg Barclays US Aggregate Bond Index (Abbreviated as Bloomberg US Agg in table)
The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency).
Bloomberg Commodity Index
Formerly known as the Dow Jones UBS Commodity Index. The Bloomberg Commodity Index is calculated on an excess return basis and composed of futures contracts on 22 physical commodities. It reflects the return of underlying commodity futures price movements.
Dow Jones U.S. Select REIT Index
The Dow Jones U.S. Select REIT Index intends to measure the performance of publicly traded REITs and REIT-like securities. The index is a subset of the Dow Jones U.S. Select Real Estate Securities Index (RESI), which represents equity real estate investment trusts (REITs) and real estate operating companies (REOCs) traded in the U.S. The indices are designed to serve as proxies for direct real estate investment, in part by excluding companies whose performance may be driven by factors other than the value of real estate.
Indexes are unmanaged and are not available for direct investment.
The S&P 500 Industrials Select Sector Index measures the performance of industrial stocks, as classified by the Global Industry Classification Standard (GICS). Every Select Sector stock is also a constituent of the S&P 500 Index. It is float-adjusted market capitalization weighted.
The S&P 500 Information Technology Index comprises those companies included in the S&P 500 that are classified as members of the Global Industry Classification Standard (GICS) information technology sector.
The S&P 500 Materials Index comprises those companies included in the S&P 500 that are classified as members of the Global Industry Classification Standard (GICS) materials sector.
The S&P 500 Real Estate Index comprises stocks included in the S&P 500 that are classified as members of the Global Industry Classification Standard (GICS)® real estate sector.
The S&P 500 Utilities Select Sector Index measures the performance of utility stocks, as classified by the Global Industry Classification Standard (GICS). Every Select Sector stock is also a constituent of the S&P 500 Index. It is float-adjusted market capitalization weighted.
The S&P 500 Energy Select Sector Index measures the performance of energy stocks, as classified by the Global Industry Classification Standard (GICS). Every Select Sector stock is also a constituent of the S&P 500 Index. It is float-adjusted market-capitalization-weighted.
The S&P 500 Consumer Staples Select Sector Index measures the performance of consumer staples stocks, as classified by the Global Industry Classification Standard (GICS). Every Select Sector stock is also a constituent of the S&P 500 Index. It is float-adjusted market capitalization weighted.
The S&P 500 Consumer Discretionary Select Sector Index measures the performance of consumer discretionary stocks, as classified by the Global Industry Classification Standard (GICS). Every Select Sector stock is also a constituent of the S&P 500 Index. It is float-adjusted market capitalization weighted.
The S&P 500 Health Care Index comprises those companies included in the S&P 500 that are classified as members of the Global Industry Classification Standard (GICS) health care sector.
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