Stock market returns in 2019 were spectacular, though there was plenty to worry about. To start 2020 off right, let’s examine what just happened.
As 2018 ended, the Standard & Poor’s 500 was in the throes of a free fall. On December 18th, the Fed had announced a quarter-point hike in interest rates, which triggered a 19.8% drop by Christmas Day 2018.
On January 4th, 2019 the nation’s top financial officer appeared at the American Economic Association annual meeting in Atlanta, flanked by his two predecessors, and admitted the Fed made a mistake by raising rates. Fed Chair Jerome Powell began a crucial shift in monetary policy that day, live on the Web before an audience of several thousand viewers as well as those in the room.
It was a poignant moment in financial history. It showed the transparency of the Fed — a uniquely American strength — just as investors were fleeing stocks for fear the rate hike would push the economy into a recession. The Fed chairman that day said he would be taking the market’s downside risks into account in making policy decisions moving forward. The Fed chief’s policy reversal presaged three quarter-point rate cuts in 2019, which fueled the great bull run.
Looking back at the past year and the last 20 quarters shows how entirely unpredictable the market is. The spectacular returns of 2019 followed a -13.5% loss in the fourth quarter of 2018. The uneven quarter-to-quarter returns are typical of the spasmodic and unpredictable gains and losses in bull markets.
As 2020 begins, the 60 economists surveyed in early December by The Wall Street Journal expected an average rate of quarterly growth over the five quarters of 1.8%. That means the 10½-year expansion — the longest in modern history for the world’s dominant economic power — is not expected to end for the foreseeable future.
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