Published January 10, 2020
Rarely has a +30% gain felt so lackluster. The year of 2019 closed with that substantial gain, one that registers in the top tenth of all market years. Yet those of us who watch the markets day-in, day-out and seek to follow the market’s trend viewed it as a play in three distinct acts, with only the final four months of the year delivering any real upside.
The stage was set with a sharp bearish decline from October-December 2018. That was an almost -20% drop over about 10 weeks. It was SWIFT and really took the wind out of the market.
The first four months of 2019 used the Federal Reserve’s renewed support, in the form of lower interest rates and greater liquidity, to recover the entirety of the end-of-2018 decline. We recover that decline only to be slammed again in May with a sharp drop. However, this time that drop is quickly recovered the following month. But it stops at the point of recovery. It offers no additional upside. The left-most box in the chart below shows that drop and recovery.
Then, we tread water for three solid months (the second box below), with the S&P struggling mightily to get above 3000. Once that happens in October, however, it’s finally off to the races. The bearish market posture of the prior year is over. Stocks climb above 3000, and they haven’t looked back.
For anyone investing in the S&P 500 index, they spent the entire first nine months of 2019 simply working to get back to where they were a year earlier. While the stock market was posting heady gains, those gains were only making back losses dealt in 2018. The stock market finally breaks out above those levels and marches higher from 3000 to 3250.
That +8% gain is more what the year felt like – a good 4th quarter after a year spent churning back and forth in the midst of an extended market correction. Every year is different with the headline gain or loss hardly telling the full story. For 2019, the story was one of recovery; and the beginning of what could be another leg higher for this bull market (or perhaps even a brand new bull cycle, depending on how you look at it).
Stocks opened lower Monday as investors digested the possible impact of heightened tensions with Iran. However, the morning dip was bought with stocks reversing higher to close with a gain of +0.4%. Most of that gain was given back Tuesday as Iranian officials vowed to avenge the killing of their military leader by a U.S. airstrike. However, the fiery rhetoric gave way to action by Iran and a subsequent de-escalation of the tensions Wednesday. The change in tone fueled a +0.5% pop in stocks as investors resumed the uptrend. The rally gained steam Thursday with another +0.7% rise. Tech/consumer stocks once again led the market higher with investors appearing to focus on an imminent signing of the “phase one” trade deal with China. A relatively quiet monthly jobs report failed to spark enthusiasm Friday. Stocks closed -0.3% lower after initially rising on the report.
Investors shrugged off the tensions in the middle east to post yet another weekly gain. The S&P 500 (SPY) added +1.02% while the Nasdaq 100 (QQQ) lifted +1.98%. Small-cap stocks (IWM) failed to participate, holding flat at -0.15% on the week.
Warm wishes and until next week.