Now that 2019 is in the books, we might want to take a breather before we embark on the next decade. Unfortunately, we don’t have that luxury. (spoiler alert!) Already in 2020, we have had the signing of phase one of the U.S. – China Trade Agreement, articles of impeachment of President Trump delivered to the Senate, and a stock market that is up 2.0% in the first sixteen trading days of the year. But that’s for future Gavin to write about. Right now, let’s take a look at what happened in the last year of the 2010’s.
2019 had the dubious honor of following the only down year (total return*) in the stock market of the decade. With a dramatic downturn in the fourth quarter of 2018, the S&P 500 closed down 4.38% for that year. As we entered 2019, the chorus of calls for a recession and a bear market was deafening. And who could blame them? The market had its first down year in nearly a decade. We were in the longest bull market in history. And, we had just hit all-time highs three months earlier. But a downturn was not to be.
Bouncing off the low on Christmas Eve 2018, the stock market proceeded to drive onward and upwards for practically the entire year. The mostly large cap S&P 500 gained a whopping 31.5%^ for 2019, while the blue chip Dow Jones Industrial Average added 25.3%. The small cap Russell 2000 increased 25.5% and even the international markets, as measured by the MSCI EAFE Index, jumped 21.7%.
As unexpected as it was to see the stock market rise so dramatically, the bond market may have been an even bigger surprise. Before the start of the year, most analysts and economists believed interest rates were heading higher. With the US economy steadily growing and the Fed continuing to tighten the money supply**, rates seemed to have nowhere to go but up. This all changed early on, as the Fed seemingly reversed its policy and actually lowered interest rates for the first time in a decade. The ten year Treasury yield dropped from 2.69%^^ at the beginning of the year to 1.92%^^ at the end. This helped the bond market, as measured by the Bloomberg Barclays US Aggregate Bond Index, which gained 8.7%.
This change in monetary policy definitely helped the stock market as well. This environment makes it easier for companies and consumers to borrow and spend, and should help the economy as a whole. In addition to the Fed’s actions, there were other notable events. The trade wars with China, and to a lesser degree Mexico, Canada and Europe, were in the news constantly. Impeachment proceedings against President Trump created more uncertainty, even as the economy continued to grow and unemployment continued to drop.
One of the most concerning developments in 2019 was the inversion of the U.S. Treasury yield curve***. This happens when shorter term Treasuries have a higher yield than the longer term ones. In normal times, the longer term bonds should have a higher yield because of inflation. Inflation is a natural consequence of growth, and can be seen as a proxy for growth. Therefore, an inverted yield curve signals a time where investors believe that growth could be slowing. Even more disturbing is that, since 1980, every recession has been preceeded by an inversion of the yield curve.
That being said, it’s still impossible to predict a recession or bear market. 2019 should be proof positive of that. And the recessions we’ve seen lately have occurred anywhere from 12 to 24 months after a yield curve inversion. But, maybe all that doesn’t really matter. From an investing point of view, it’s more important to invest based on your situation, than on what the market is doing. So talk to your Financial Advisor, create a portfolio that is appropriate for you and your goals and invest accordingly. Where do we go from here? 2020 is sure to be interesting (remember, it’s an election year). So hang on and stay tuned!
*Total return includes dividends
^All market returns: https://content.rwbaird.com/RWB/Content/PDF/Insights/Quarterly-Market-Chart-Book.pdf
**The Fed tightens the money supply by reducing the amount of money in the economy. It does this by raising the fed funds rate (short term interest rates) and buying less US Treasuries and mortgage backed securities
***The Treasury yields that inverted were the ten year v. two year, and the ten year v. 3 month
Non-deposit investment products and services are offered through CUSO Financial Services, LP (“CUSO Financial”) (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CUSO Financial: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CUSO Financial. Verity Credit Union has contracted with CUSO Financial to make non-deposit investment products and services available to credit union members. Atria Wealth Solutions, Inc. (“Atria”) is not a broker-dealer or Registered Investment Advisor and does not provide advice. CUSO Financial is a subsidiary of Atria.
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A Financial Advisor registered through CUSO Financial Services, L.P., Gavin has 25 years of experience as an advisor in the Puget Sound area.
“I believe every client is unique and deserving of a personalized financial plan that will help them reach their individual financial goals. Before I make any recommendations, I like to get to know my clients. By asking the right questions, and developing an honest, trusting relationship, I can really get a sense of what’s going to work best for them.”
Gavin graduated from the University of Washington with a BA in Business Administration and started his financial career with US Bank in the Investment Department. Prior to joining Verity in 2006, he spent eight years with Piper Jaffray.
So what is Gavin’s vision for his dream retirement?
“My dream retirement would be absolutely worry free: financially, emotionally, and in every aspect of life. My finances would be in order so expenses for travel, luxuries, and gifts for the kids, grandkids, and great-grandkids would be taken care of. My kids would be financially sound, so I would be confident in their prosperity. This would give me the freedom to travel and play and do whatever it is I want to do.”
When Gavin’s not working, he enjoys spending time with friends and family, watching Husky football and taking weekend trips around the Northwest.
Gavin is registered to transact securities business in the states of AZ, CA, CO, FL, HI, ID, IL, KS, MN, NV, NY, OR, UT, VA and WA.
*Non-deposit investment products and services are offered through CUSO Financial Services, LP (“CUSO Financial”) (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CUSO Financial. Verity Credit Union has contracted with CUSO Financial to make non-deposit investment products and services available to credit union members. Atria Wealth Solutions, Inc. (“Atria”) is not a broker-dealer or Registered Investment Advisor and does not provide advice. CUSO Financial is a subsidiary of Atria.
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