2019: The year stock markets broke records - December 23, 2019

2019: The year stock markets broke records

Stock markets have had an extraordinary year. After a mediocre ending in 2018, this year S&P 500 broke several records. More than two-thirds of the index’s companies gained value. The US economy had its very first decade without a recession. Let’s dig into the details of 2019!

This was an extraordinary, although not unexpected year for stock markets. After the year-end fall of 2018, many analysts (our owns included) expected that 2019 might be a great year for stocks. We went as far as saying “2019 may be the year of investments”, and were we right.

S&P 500 YTD PerformanceS&P 500 YTD Performance

Record breaking year, exceptional decade

Stock markets, especially S&P 500 broke records this year. Just a few reminders of our former blogposts this year:

 

 

Things did not stop there: although there was a small slow down at the middle of the year, the stock market rally went on. All this extraordinary performance was crowned by a Santa Claus rally (see: Records on the market: is this the surge we’ve been waiting for?) which goes on to this day.

This is not just the end of a year, but also of a decade. And what a decade it was! According to CNBC’s article, this was the first time ever “the U.S. economy started and ended an entire decade without entering a recession”. During these years, S&P 500 never fall more than 20%, which is a record on its own.

Everything worked, tech took the lead

“In 2019, almost every investment worked”, that’s according to another CNBC article. Out of the 500 companies of the index, only 64 lost value, all the others were profitable. That means only 12% of S&P 500 stocks made a loss, which is a strong number.

Tech companies did especially well. Firms of the Information Technology sector gained 41.5% compared to last year, while Communication Services grew by 28.1%. This is not surprising, knowing that the top companies of S&P 500 are tech companies including Microsoft, Apple, Amazon, Alphabet (Google), and Facebook. They alone make up 16.5% of the whole index.

FED’s turnaround was needed

Many contributing factors were needed to achieve this breathtaking performance. First, the absolute U-turn of the Federal Reserve’s policy. Goaded by President Donald Trump, they reintroduced rate cuts and (a non-QE) QE program. Although there was no need for it, since the economy and the markets are in good shape, their decision created extra liquidity on the markets. This led to extra demand for stocks, pushing prices higher and higher.

Although we still believe that these low rates are wrong for many reasons (see: Did the floodgate to negative interest rates brake?), they certainly helped the stock markets. Even at a time when trade war was constantly on the table, and it’s still hasn’t been solved yet, however, small steps were taken.

What will 2020 bring?

The aforementioned trade war will remain a key topic next year as well. Just like Donald Trump’s impeachment. And more importantly, there will be a presidential election. This is a crucial factor for the markets as well, since in election years markets usually perform well. Another good sign is that after such strong years like this one, at a slower pace, but stocks usually go higher.

We will write about that more in our next blogpost.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.