If Wall Street can hold the line for the next two trading days, the stock market will lock in its best year in over 20 years. Having already rallied 175% from January 2009 through December 2018, you’d have been forgiven for thinking the S&P 500 might start topping out
after one of the most powerful bull markets in history. A 15% market sell-off last December seemed to confirm the bear thesis that this bull market was getting a little long in the tooth.
However the market has been only too happy to prove the naysayers wrong and as we go into the final two trading days of the year, it’s looking to sign off on 2019 with more than a 30% run while still printing fresh all-time highs.
The benchmark S&P index isn’t alone in this regard, with the tech-heavy NASDAQ index and the industrial Dow Jones also up at all-time highs as investors toast the markets ability to shake and shrug off obstacle after obstacle.
The ongoing US-China trade war dominated economic headlines this year as random threats, reports of progress and surprise comments flew back and forth across the ocean. On top of this there were growing concerns about a slowdown in global economic growth. Monthly reports like the ISM Manufacturing Index told us repeatedly that US production was tightening up and as recently as November, all the metrics it tracks were in contraction.
Concerns about a near-term recession were also fed by an inverted yield curve which has been a strong indicator of recessions in the past. It became inverted, with longer-term bonds offering lower yields than nearer-term bonds, in March and remained so through October. While the US hasn’t entered a recession yet, it’s worth remembering that the yield inverted several times in the run-up to 2008. For now, rate cuts from the Federal Reserve seem to have worked but can they be relied upon indefinitely?
In contrast, the monthly non-farm reports were almost a constant source of strength to the market in 2019 and showed a growing labor force that seemed to counter the concerns from contracting manufacturing data. However, this also makes the stock market vulnerable to a change and an uptick in unemployment in tandem with continued manufacturing contraction in the coming months will surely have investors getting nervous.
Until that happens though, 2019 will be remembered as the year that Wall Street asked “so what?” to every potential hiccup. Keeping in mind how volatile the market was in the last election year, 2016, and with all the dark clouds on the horizon (did I mention the US President is on the verge of being impeached?), can the market be expected to maintain its robustness in 2020?
Best / Worst Performing Industries
When broken down by industry, IT unsurprisingly dominated again. The tech-heavy NASDAQ is up almost 32% on the year compared to the S&P 500’s 24% and the Dow Jones’ 19%.
In the world of tech, heavyweights such as Apple (NASDAQ: AAPL) weren’t afraid to lend their weight and the smartphone giant has notched a 100% return this year alone. This gives it an eye-watering market capitalization of $1.3 trillion but its stock remains as nimble as a small-cap biotech. The Communications and Consumer Discretionary industries also performed well while strong earnings growth was seen in Health Care and Utilities. Energy will own the mantle for the worst-performing sector as it currently sits down 4% from where it started the year when seen through the S&P Energy Index. Stocks like Chesapeake (NYSE: CHK), which became a penny stock in November, embody the pain felt by so many energy companies who struggled to stay afloat even as crude oil rallied 35% this year.
All in all, investors shouldn’t expect too much to change when we review 2020’s best and worst-performing industries in a year's time.
Auld Lang Syne
As the bell rings for the penultimate trading session of the year, the bulls will set to work holding the line through Wednesday. If they do so, they’ll not only lock in the best year for the stock market in two decades, but they’ll also sign off on a recession-free decade - meaning we can take a cup of kindness yet, For auld lang syne.