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December 2019 Monthly Review

"More Anything?... More Everything!"

By Loyd Johnson, Chief Investment Officer
LJohnson@fcbanking.com
412-208-7687
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Loyd Johnson PhotoA Look Back

Diehard Seinfeld fans will recognize the above title from an episode in season 4 where Jerry was sitting in first class while Elaine was stuck in coach. Jerry was enjoying all of the benefits that come with first class, and Elaine...not so much, as she was crammed between two people and had the beverage cart blocking her exit. Elaine even tried to sneak up to the first class area, but was embarrassingly sent back. Eventually, the flight attendant catering to Jerry asked," more of anything?" to which Jerry replied, "More of everything!"

Such was the case with the stock market in December and for the full year of 2019. The large cap S&P 500 gained an additional 3% in the month to bring the full year tally to a whopping 31.49%. Small-cap stocks continued their resurgence with a nearly 3% month as well and finished the year up over 25.5%. International stocks performed particularly well. Developed International equities were up 3.25% in December and Emerging Markets busted out with a 7.46% month. Emerging Markets as an asset class have been trailing drastically over the last couple of years versus Domestic stocks, and even with the most recent out-sized returns, still trailed for the full calendar year by over 13%.

The Fixed Income side was quiet for the month with the Bloomberg Barclays Aggregate basically flat. The 8.72% return for the full year, however, was a benefit to balanced accounts everywhere. Cash, which was the best performing asset class just a year ago, gave conservative investors a 2.28% payback in 2019. What a difference a year can make! In fact, as you look at the table above with a variety of asset classes, you can’t find any red (negative returns) when looking at the YTD performance numbers. Recent economic numbers have been okay. U.S. Personal Spending and Personal Income were up 0.4% and 0.5%, respectively in November, and higher than consensus. We will get into more details in our quarterly piece, but one could argue that it has been the consumer and, to a large extent, Uncle Sam really driving much of the good that we’ve seen in the economy over the last several months. The Fed did cut rates three times in 2019, after nine rate hikes that started in December 2016. It was an unexpected policy turnaround, as the Fed had signaled two to three more rate increases at the end of 2018.

 

December Monthly Review Chart

 

A Look Ahead

We have talked many times about the potential geopolitical landmines that are always present that can affect our markets. There are ones that we can see and discuss like the ongoing U.S./China trade war…and ones like the recent report of a U.S. strike on an Iranian general which are unknown until they come across our news headlines. The initial market reaction has been negative, as stocks have traded off and safer securities like U.S. treasuries have traded up. It remains to be seen if this event casts more of a long-lasting shadow on the bull market. We usually only know the answer to those types of questions with the benefit of considerable hindsight. We believe that conditions remain that could allow for a continued advance for equities. We also believe that increased volatility is likely and a cautious approach ahead is prudent. A thoughtful asset allocation that is strategically rebalanced and managed works best over time. We can’t always expect more of everything…