After a difficult year in 2018 for both stocks and bonds, the U.S. capital markets roared back in 2019 with strong gains across the board. The bond market posted gains as interest rates dropped throughout the year. Stock indices in the U.S. are near record territory, recovering from last year’s losses and extending the bull market run that started in 2009.
We have talked a lot the past couple of years about this bull market in stocks. From its beginning back in March of 2009, the bull market is now 129 months old, a record for the U.S. stock market. During this run, the market has had 14 drops of at least 5% and 6 drops of at least 10%. The steady growth of the U.S. economy has fueled this climb as there have been no recessions during the past ten years. The bull lives on.
As we enter a new year and a new decade, we ponder what the next few years will look like from an investment viewpoint. There are several positives for stocks: 17 of the last 19 presidential election years have produced positive returns for the S&P 500, with the only negative years being 2000 and 2008. Also positive for the stock market are low interest rates and low inflation. Corporate earnings are strong and consumer confidence is high. Challenges for stocks include slowing global economic growth; high stock valuations; high levels of debt for American consumers and corporations; and the ballooning Federal government debt. With a government debt of over $23 trillion, we pay over a $1 billion a day in interest. During a ten year economic expansion like we are in, we would expect the national debt to be dropping rather than expanding. Like the late 1990’s, much of the current economic expansion is being financed by debt.
Economic expansion in the U.S. as measured by our gross domestic product (GDP) will end 2019 at a positive 2.2% to 2.4%. Most estimates for 2020 have this number slowing to 1.8% to 2.1%. While our economy is generally in good shape, the combination of slowing growth, high debt, and high stock valuations is a combination that carries risks. While it is impossible to predict with any level of certainty what will happen over the next twelve months, we are taking a conservative stance with our investments.
Some new IRA laws that will affect many of you take affect with the new year. The age at which you must begin taking required minimum distributions (RMD’s) rises to 72 from 70 ½. If you turned 72 ½ in 2019 or earlier, you are not affected by the change. Also, distributions from inherited IRA’s must now be completed in ten years rather than based on life expectancy.
Please let us know if you would like to receive an updated copy of our Form ADV Part 2, which is also posted on our website. Welcome to the 2020’s!