2019 Fourth Quarter Market Update

Writing our quarterly market updates is a task for which I truly enjoy and look forward to. It gives me a chance to communicate current market conditions with clients, friends, and partners of FSG. This is also an opportunity for me to educate and reinforce the tenets of FSG’s investment philosophy. I often learn quite a bit as I write these pieces and I hope you do as well. 

Let me start by reminding you that at the end of the 3rd quarter our biggest concern was the lack of progress on a trade agreement with China. I believe this was starting to have an impact on the economy and was certainly a hindrance to the market. I was optimistic markets would respond positively with progress on this topic as they had in the past. I was also skeptical that the timing of any sort of resolution could be predicted. Since then, a “Phase One” trade agreement has been announced and it is scheduled to be signed January 15, 2020. “Phase One” was announced on October 11, 2019, and as you can see from the chart below, markets responded very positively. 

Ultimately, progress on trade helped catapult the markets in the 4th quarter, which added to the already impressive gains of the year. The result was a great year for markets with U.S. Large Cap Stocks leading the way. 

*Emerging Markets=MSCI Emerging Markets, U.S. Small Cap=Russell 2000, U.S. Large Cap= S&P 500, International Developed = MSCI EAFE, U.S. Bonds = Bloomberg Barclays U.S. Agg Bond, Long-Term Treasuries = Bloomberg Barclays U.S. Treasury: Long

It is always nice to have a good year. However, looking back is not really that helpful. You might find yourself far more concerned about how things will go this coming year then you are with how they went last year. I cannot blame you, particularly in light of recent events: Impeachment, Election Year, and World War 3 trending on Twitter (due to the assassination of an Iranian General). 

Let’s take a moment and discuss these topics individually.  First, the impeachment situation essentially does not matter to markets due to the fact that it is extremely unlikely the Senate will remove the president. However, I was curious about how markets reacted during the last presidential impeachment process. This, of course, was the impeachment of then-President Bill Clinton. Perhaps, this has little to no relevance today, but it is kind of interesting to see that markets soared during this time. See below.

Next, we have the fact that this year is an election year. I get asked about how elections are going to impact markets more often than I care to admit. My colleague, Brandon Carter wrote an excellent article earlier this month entitled  “ELECTION YEARS: WHAT DO THEY MEAN FOR STOCKS?”. In this article, Brandon addressed many of the concerns investors have about election years. If you missed reading his article, here is a very intriguing excerpt. 

“The big question is, of course, “How have markets performed during election years?” According to research by Dimensional Funds, average returns for the S&P 500 have been positive in both election years and years subsequent to election years. Since 1928, the S&P 500 has had an average return of 11.3% in election years and 9.9% in the years following the election. Seems pretty good either way to me.”

Lastly, I’m sure you have heard that the United States eliminated an Iranian general. This caused media outlets and social media to hyperbolically state this would trigger WW3. I will not make that prediction. However, as another experiment, I took a look at what the Dow Jones did over the course of major conflicts such as WW2, WW1, and Vietnam. Fortune had an article recently that looked at this exact topic. What they found was that during each one of these periods, markets were not only up, but were up considerably. A link to the article is below but here is the summary.

• WW1 Market performance 8.7% a year

• WW2 Market Performance 7% a year

• Korean War Market Performance 16% a year

• Vietnam War Market Performance 5% a year

• Credit to Fortune https://fortune.com/2020/01/03/iran-us-conflict-stock-market-oil-prices/

My point is that there is always conflict and concern in the world. Forget the noise and focus on what you can control. There will be bumps in the road such as the crash of 2018. Yes, I mean 2018, not 2008. If your not sure what crash I am referencing just know that in the 4th quarter of 2018 markets crashed by approximately 20%. The crash of 2018 was just over a year ago and this is a distant memory like many of the other “market headwinds” of previous years. I’m sure we will look back at many of today’s headlines with similar amnesia. 

I wish each and every one of you a truly wondrous 2020. As you have questions or concerns, please reach out. We always love to hear from you!

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Financial Strategies Group, Inc employees providing such comments, and should not be regarded as a description of advisory services provided by Financial Strategies Group, Inc or performance returns of any Financial Strategies Group, Inc Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Strategies Group, Inc manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

Written by: Brice Carter