by The Gould Asset Management Team

Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the Fourth Quarter of 2019. The excerpt is posted here for the benefit of our blog subscribers.

Stocks Finish 2019 With a Bang, Capping Strong Year for US and International Equities

US stocks rose in the fourth quarter as trade tensions and fears of an economic slowdown receded. US large cap stocks, as measured by the S&P 500 stock index, rose 9.1% on the quarter, finishing the year up a remarkable 31.5%.

Looking back on the year, strong employment figures and an accommodative Federal Reserve were two key drivers for the market in 2019. The saying, “Don’t fight the Fed,” (i.e. don’t bet against the market when the Fed is actively supporting it by cutting interest rates) might be an apt slogan for the year.

2019 also marked the end of an exceptional decade for stocks that began in the depths of the 2007-2009 crisis. US large caps returned more than 350% (13.6% annualized) over the 10-year period. It was also a period of unusually low market volatility, with only six corrections of 10% or more.

Technology and healthcare led the advance in Q4 (both up 14.4%), followed by financials (up 10.5%). Tech stocks benefited from the US and China’s Phase 1 trade deal announcement, which ushered in the prospect of lower tariffs in 2020.

International developed stocks also rose on the quarter amid improving (but still not great) economic conditions abroad, with the MSCI EAFE index gaining 8.2%. Although underperformance relative to US stocks was modest on the quarter,

it was more pronounced over the full calendar year, with the MSCI EAFE index rising 22.7% vs. the S&P 500’s 31.5% return.

Emerging market stocks—despite a strong fourth quarter (up 11.9%)—also trailed for the year, rising 18.9% as measured by the MSCI Emerging Markets index.

Market volatility, as measured by the VIX volatility index, was mostly subdued in the fourth quarter, falling from 16.2 on September 30th to 13.8 at year-end. The decline largely correlated (inversely) with buoyant stock prices and stood in stark contrast to the volatility of late 2018, when VIX reached 36. 

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