Market reflections for fourth quarter 2019: Strong returns end the year

Market reflections for fourth quarter 2019

2019 ended on a positive note. Stocks experienced strong returns in the fourth quarter, contrasting against the sharp declines experienced in 2018.

For the year, both equity and fixed income ended with robust market gains. The S&P 500 finished with its best yearly performance since 2013, returning +31.5%, while the Bloomberg Barclays Aggregate Bond Index’s +8.7% return was the best return since 2002.

Despite the result, the ride was not always smooth. An inverted yield curve, trade concerns and Britain’s exit from the EU created anxiety for investors throughout 2019. Fortunately, those concerns began to ease in the fourth quarter, aiding market performance as economic data improved and softened recession fears.

After calling off negotiations in May and threatening to increase tariffs earlier in the year, the U.S. and China agreed to a phase one trade deal in December. President Trump is expected to sign the phase one deal January 15.

Meanwhile U.K. Prime Minister Boris Johnson and his conservative party gained a majority after a general election was called in December. This added certainty around Britain’s exit from the EU after a referendum began the process back in 2016.

The Federal Reserve made an additional quarter-point cut to the federal funds rate at their October meeting. Combined with the prior two rate cuts, this saw the federal funds rate lowered 75 basis points in 2019 to a range of between 1.50% and 1.75%. The rate cut was seen as an accommodative measure in response to continued muted inflation and the global market environment.

Fourth quarter 2019 returns

Returns shown in the chart above are for fourth quarter 2019.
Source: Morningstar®, data as of December 31, 2019. See disclosure for more information.

Stock performance across the globe

U.S. large-cap stocks, represented by the S&P 500, had a strong 9.1% gain in the fourth quarter and was the best performing asset class on the year (+31.5%). Within the large-cap segment, growth stocks (Russell 1000 Growth Index, +10.6%) finished ahead of value stocks (Russell 1000 Value Index, +7.4%) for the quarter.

Small-cap stocks, represented by the Russell 2000 Index, were up 9.9%, slightly outpacing U.S. large-cap stocks for the quarter and ending the year with a 25.5% gain. Within small caps, value stocks (Russell 2000 Value, +8.5%) lagged growth stocks (Russell 2000 Growth Index, +11.4%) during the fourth quarter.

International developed stocks rebounded during the fourth quarter. The MSCI EAFE Index was up 5.2% in local currency terms and had an 8.2% gain in USD terms. A weakening USD was a beneficial factor for U.S. investors in overseas markets after being a headwind in the prior quarter.

Emerging markets stocks, represented by the MSCI Emerging Market Index, were up 9.5% in local currency terms and 11.8% in USD terms, finishing as the best-performing asset class in the fourth quarter. Emerging market stocks finished the year with a positive 18.4% gain.

 World asset classes

Returns for the fourth quarter and YTD 2019

Source: Morningstar®, data as of December 31, 2019. See disclosure for more information.

Fed adds rate cut during the quarter

The U.S. yield curve steepened during the fourth quarter. Yields of the three-month Treasury bill fell 33 basis points, while 10-year Treasury note yields increased 24 basis points, resuming an upward slope to that segment of the curve after being inverted to end the third quarter.

For the year, yields finished lower across the curve, capping a decline that was a consistent theme for the year and contributing to the strong yearly bond returns (as yields fall, bond prices rise).

The Bloomberg Barclays Aggregate Index, representing investment-grade U.S. bonds, posted small returns and gained 0.2% for the fourth quarter, ending the year with a robust 8.7% gain. Municipal bonds, represented by the BBgBarc Municipal 1–10Y Index, also had a positive quarter, returning +0.9% (+5.6% for the year).

Emerging market debt again posted positive returns in the fourth quarter, ending a strong year for the asset class. The JPM EMBI Global Diversified TR Index, representing bonds denominated in U.S. dollars issued by emerging-market governments, returned +1.8% for the quarter and +15.0% on the year. High-yield bonds (represented by ICE BofAML BB-B US CP HY Index) also posted solid results, gaining 2.6% (+15.1% gain for the year).

A disciplined approach to success

Looking back at the last decade, markets have performed very well, and the U.S. economy continues to add to its record as the longest expansion in U.S. history. While it may seem like an easy choice to be invested over this period in hindsight, the highs and lows of the market throughout the decade have challenged those without a long-term disciplined perspective.

Pundits are always eager to share their predictions of future market returns. This may hold even more true now as predictions for the decade ahead come out. It’s difficult to know what the future holds, and it’s important to be aware of headlines that are written to attract, not inform. What is certain is markets will have their ups and downs. A diversified portfolio and disciplined approach usually puts investors in a position to weather the storms for long-term results.

If you’d like to take a more diversified and disciplined approach to investing, tailored for long-term success, contact Wipfli Financial Advisors.

CONTACT US

U.S. Stock Market: Russell 3000 Index
International Developed Stocks: MSCI EAFE NR Index
Emerging Markets Stocks: MSCI EM NR Index
U.S. Bond Market: Bloomberg Barclays Aggregate Index
Emerging Markets Bonds: JPM EMBI Global Diversified TR Index

Wipfli Financial Advisors, LLC (“Wipfli Financial”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC); however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Wipfli Financial is a proud affiliate of Wipfli LLP, a national accounting and consulting firm. Information pertaining to Wipfli Financial’s management, operations, services and fees is set forth in Wipfli Financial’s current Form ADV Part 2A brochure, copies of which are available from Wipfli Financial upon request at no cost or at www.adviserinfo.sec.gov. Wipfli Financial does not provide tax, accounting or legal services. The views expressed by the author are the author’s alone and do not necessarily represent the views of Wipfli Financial or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Wipfli Financial, and Wipfli Financial does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Wipfli Financial of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional.

Return data represent past performance and are not indicative of future results. Historical returns of indices do not reflect applicable transaction, management or other applicable fees, the incurrence of which would decrease historical performance results. Index information has been compiled by Wipfli Financial from sources Wipfli Financial deems reliable, but has not been independently verified. Historical performance results for investment indices and/or categories have been provided for general comparison purposes only. Indices are unmanaged. It is not possible to invest directly into an index. Any charts and graphs represented herein are for informational purposes only and cannot in and of themselves be used to determine which securities to purchase or sell, or when to purchase or sell securities.

Source: © [2019] Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

Wipfli Financial Advisors, LLC (“Wipfli Financial”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC); however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Wipfli Financial is a proud affiliate of Wipfli LLP, a national accounting and consulting firm. Information pertaining to Wipfli Financial’s management, operations, services, fees and conflicts of interest is set forth in Wipfli Financial’s current Form ADV Part 2A brochure and Form CRS, copies of which are available from Wipfli Financial upon request at no cost or at www.adviserinfo.sec.gov. Wipfli Financial does not provide tax, accounting or legal services. The views expressed by the author are the author’s alone and do not necessarily represent the views of Wipfli Financial or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Wipfli Financial, and Wipfli Financial does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Wipfli Financial of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional.
Wipfli Financial Advisors Investment Committee
Wipfli Financial Advisors Investment Committee

About Wipfli Financial's Investment Committee: https://www.wipflifinancial.com/investment-advisory/our-philosophy/investment-committee

No Comments Yet

Comments are closed

Market reflections for fourth quarter 2019: Strong returns end the year

time to read: 5 min