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2019 Market Recap and 2020 Outlook

2019 was a banner year for global markets. The U.S. stock market continued its dominant lead over international markets, large caps outperformed small caps, and growth outperformed value stocks. Coming off a rough Q4 in 2018 (when the S&P 500 was off approximately 20% from its recent highs), this was a much-enjoyed rally. The main drivers of 2019 returns were:

  1. The Federal Reserve: They cut rates three times and reversed course on reducing their balance sheet, which actually went back to providing more liquidity to markets via "quantitative easing" (QE). 
  2. Increased multiples: Investors were willing to pay more for earnings in 2019, as the multiple (P/E) increased from roughly 15 to 18 (approximately 20%). Year-over-year earnings by S&P 500 companies were actually flat. In our opinion, earnings will be a theme we closely watch in 2020, as we believe multiples are fairly to fully valued.
For 2020, we do not expect a repeat of 2019. However, we also do not foresee an imminent risk of recession, as the U.S. consumer (which accounts for roughly 68% of U.S. gross domestic product) is strong. Unemployment is at all-time lows and wage growth is on the rise.

We will continue to monitor the main drivers of performance we mentioned above the Fed's monetary policy, earnings and multiples. We believe monetary policy is running at almost full capacity, so we will need more stimulus from the fiscal side (i.e. government spending), which would not be uncommon in a presidential election year. Our expectation is that 2020 will be a reasonably good year, but volatility will return with geopolitical risks, more tariff talks and election cycle posturing.
Your Red Door Team
Disclaimer
This communication and its content are for informational and educational purposes only and should not be used as the basis for any investment decision. The information contained herein is based on publicly available sources believed to be reliable but not a representation, expressed or implied, as to its accuracy, completeness or correctness.

No information available through this communication is intended or should be construed as any advice, recommendation or endorsement from us as to any legal, tax, investment or other matters, nor shall be considered a solicitation or offer to buy or sell any security, future, option or other financial instrument or to offer or provide any investment advice or service to any person in any jurisdiction. Nothing contained in this communication constitutes investment advice or offers any opinion with respect to the suitability of any security, and has no regard to the specific investment objectives, financial situation and particular needs of any specific recipient.


All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals, and economic conditions may materially alter the performance of your portfolio. Past performance does not guarantee future investment success. Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses.
 
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