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November 2019 Monthly Review

"Much To Be Thankful For"

By Loyd Johnson, Chief Investment Officer
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Loyd Johnson PhotoA Look Back 
Hard to believe that Thanksgiving is already behind us and the Christmas season is weeks away. We have a tradition in our house at Thanksgiving where we go around the table after dinner and talk about something or someone that we are especially thankful for this year. As we took turns from being funny to more serious in our declarations, it occurred to me that investors certainly have much to be happy about so far in 2019. November was another stellar month for large U.S. stocks.

The S&P 500 was up 3.63% for the month, and is now positive 27.63% for the year. For perspective, the average annual return for the index is 9.8% over the last 90 years. As an aside, in only six of those years did the S&P 500 finish with returns between 5 and 10%. That indicates that the nearly 10% long-term average is made up of individual years that can be quite a bit different than the average…like this year.

So, we know that we get these outsized years, and they make up for some other anemic years. (In 2018 the S&P 500 returned -4.4%) The more interesting thing is that we typically experience the really healthy returns like this year coming off a recession or a more severe correction. The nearly 30% return this year comes with a market that is long in the tooth by almost all historical standards. It’s been 11 years since the Great Recession of 2008. Indeed, in March of 2009 the index bottomed out at a level of 666 compared to the 3141 level at the end of November. That is over 370% in price movement alone, and well over 400% total return when you factor in dividends.

Other stock benchmarks performed well too for the month, but lag the big-cap index for the year. International stocks, in particular, have had trouble keeping up with our domestic indices. Developed international equities were up only 1.13% for the month and Emerging Market stocks were actually negative at -.14%. The bell-weather bond index, the Bloomberg Barclays U.S. Aggregate was basically flat for the month, but it too has provided surprisingly strong performance this year with a nearly 9% total return. In fact, that return, combined with the strong S&P 500 return already discussed, has led to the best balanced asset allocation return (50% of each index) since 1998, when such an allocation returned 18.8%. By the end of the November, that same allocation in 2019 has returned around 18.2%. That’s pretty good stuffing to be thankful for.

A Look Ahead
It is almost impossible to look ahead lately without talking about the U.S./China trade deal. Comments or tweets from either camp about the likelihood and timing of a substantial trade deal have impacted markets daily. We believe that some sort of a compromise is baked into market expectations, such that a definitive breakdown could end this joyous ride. Other economic indicators remain neutral to positive. On December 6th the anticipated November Jobs report was released and showed that the U.S. economy added 266,000 jobs for the month…far more than the 187,000 consensus. The actual unemployment rate fell to 3.5%, matching the lowest level since 1969. The second estimate of third quarter GDP was revised up to 2.1% from the first estimate of 1.9%. As we finish the year and enjoy the rest of the holiday season, we wish all of our readers the very best and continue to remind ourselves of the things we have to be thankful for…and so far this year, that includes the markets!

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