December Market Recap
January 2, 2020
To call 2019 a good year for the stock market would not be incorrect. You could also suggest the Star Wars movie franchise has been “profitable” or that Minnesota winters are “cold.” All of those descriptions are accurate, but none convey the appropriate magnitude.
Like a first-grader on a trampoline, every fall we witnessed from stocks last year resulted in an inevitable bounce higher. As the year edged closer to its conclusion, myriad investors no doubt said to themselves, “If the market can just hold on to these gains…” As it turned out, equities rose consistently through the holiday season, adding a layer of icing on top of already sweet calendar year returns.
The Dow Jones Industrial Average rose 1.7% in December and the tech-heavy NASDAQ more than doubled those monthly gains, climbing 3.5%. Full-year returns for the three major indices ranged from 22% to 35%. All finished 2019 within 1% of their all-time highs.
In terms of sector-specific performance, only a trivial 0.06% loss for Industrials spoiled a perfectly positive month. The other 10 sectors in the S&P 500 all increased at least 1.3% in December. Energy (+6.0%) had the best month of any sector but still finished with the lowest year-to-date returns (+11.8%). Technology (+4.5% in December) capped off an exceptional year with annual returns just north of 50%.
|Index||December 2019||Total 2019|
In hindsight, it may seem surprising that equities fell sharply on the first two trading days of December. The Dow lost 268 points on Dec. 2 due to steel and aluminum tariffs levied by the US against Brazil and Argentina. President Trump indicated the tariffs were meant as a penalty because the two countries have been “presiding over a massive devaluation of their currencies.”
The Dow lost another 280 points on Dec. 3 as sentiment over US-China trade negotiations turned (temporarily) sour. A positive jobs report released on Dec. 6 helped put markets back on an upward trajectory. Monthly US payrolls increased 266,000 (the most since January), wages beat estimates, and consumer sentiment improved.
On Dec. 13, the US and China formally announced an agreement on what’s being referred to as Phase One of a broader trade deal. In its early stages, China has agreed to increase purchases of American agricultural products in 2020 and beyond. They have also made concessions regarding how they treat the intellectual property of US companies doing business in China. In exchange, the US will not impose new tariffs on China and is expected to roll back existing ones.
More details should be released once primary trade negotiators sign the deal in mid-January. In our view, the Phase One agreement being trumpeted by some in Washington is little more than another truce that fails to resolve many of the longer-term issues between the world’s two largest economies. A more comprehensive trade deal remains elusive and is unlikely to materialize prior to the 2020 US presidential election.
The dollar fell nearly 2% in December, which helped international stocks post a strong finish to 2019. Emerging Market equities had their best month since January, gaining 5.8%. Non-US Developed Market equities rose roughly 3%.
Impeachment proceedings continued in Washington but it’s hard to believe there’s any realistic chance a Republican-controlled Senate will convict the President of the charges levied against him. The stock market continues to ignore the political theater, which in our view is the appropriate response.
Bond yields are within striking distance of 2% for the first time since late July. The benchmark 10-year Treasury yield ended the year at 1.92%, compared to 1.77% at the end of November.
Oil prices rose significantly in December due largely to an agreement between Russia and the Organization of Petroleum Exporting Countries (OPEC) to reduce production. West Texas Intermediate Crude closed the year above $61 per barrel, more than 10% higher than a month earlier. The lower production targets will remain in effect until the end of March 2020
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