Market Review and Status — End of 2019

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A review of 2019

As 2019 comes to a close, let's take a look at the year in review and see what my cracked crystal ball has to say for 2020.

As you may recall the end of 2018 started out quite scary with a large drop in the market in October, down again in November and then a large drop in December due to the geopolitical situation in North Korea, as well as the start of tariff tit-for-tat with China.  January, however, was a pleasant upward surprise and by mid-February the market had regained all it lost in December and by April it had erased the entire October-December drop.  There were several reasons for this.  One of the primary factors was that businesses were still doing quite well financially.  The tax changes in 2018 were taking effect resulting in positive growth for the economy and we continued to see the employment figures rise.  The rise was not as steep because many of the people who had quit looking for a job (and thus dropped off the unemployed list) started looking again and found jobs.  However, we reached saturation and there continues to be more jobs available then (qualified*) people to fill them.

Again in May and again in August the market had pullbacks (corrections) as the market drove to new highs.  The Dow approached and exceeded 30,000 toward the end of the year.  So, it looks like we'll get to the predicted Dow 36,000 at some point, but not as early as predicted in a rather famous book from 1999!  (36,000 would mean up another 20% from where it is now, which I predict is unlikely in 2020, but we'll have to see.)

Since the beginning of October, the market has been continuing to head upwards in a constant line.  After 20%-36% rise in 2019, people are starting to feel confident that the market will only go up from here and are perhaps taking on more risk than they should.

* Qualified meaning that companies want to fill with people who already have the skills and aren't willing to hire and train.  That results in a gap between skilled and unskilled labor, but that's more of an economic issue and not directly market finance.

What does 2020 look like?

Taking a look at 2020, I'll do my usual prognostications but leave out the details, as the cracked crystal ball doesn't work well enough to make timing predictions.

With such really large gains in 2019 (even taking into account going back to October of 2018), I see this as unsustainable.  One of the reasons for this is that we are starting to see some slowdown in major economic indicators that may be showing that the tariffs put into place in 2019 are starting to work into the economy.  Over the long-term, the health of business and the economy drive the markets.  (In the short-term, news has more of an impact.)  Another reason is the uncertainty caused by the actions of the President.  One never quite knows what he is going to do, and markets do not like uncertainty.  Politically, we have a Trump vs ???? race for the November elections in 2020 and until those question marks are filled with a name, there will continue to be uncertainty in the market.  The fact that the President has had articles of impeachment drawn up, but not completed adds some anxiety.  I'm not sure whether the market will like or not like the fact that the Senate will likely dismiss his case.  Juxtaposed against this negative sentiment is the fact that 2020 is an election year.  Politically, candidates and incumbents tend to not want to rock the boat, so they won't be making any significant changes in the coming year.  That's a positive sign for the market.

So what does this all mean?  I predict that we may have some more volatility in the market (it has gotten pretty quietly upward the past few months) for the year.  Because of the slowdown in the economy, along with potentially tax benefits decreasing in impact and the trade tariffs taking more toll, I predict that we may see a much more flat market for the year.  I cannot really predict the short-term future, so I'm not going to say when the ups and downs will be.  If you are invested for the long-haul, you shouldn't really care whether it moves up or down in a year as nearly any 10-year period will be positive.

Posted in Finance.