Q4 2019
Firm
Update

As we head into 2020, we must note how extraordinary and interesting the past year has been. 2019 was supported by economic data, a phase one trade deal agreement, and an accommodative Federal Reserve policy. On the economic front, it was another year of positive growth. January 2020 marks the 128th consecutive month of U.S. expansion, continuing the legacy of the longest economic recovery in history. Unemployment remains very low at 3.5%, and wages continue to rise modestly. Both necessary components of a robust labor market. As a result, the University of Michigan consumer confidence index is still above 99, higher than where we ended last year and well above the long-term average of 86.6. Personal spending has bounced back from 2018 as well, which is a meaningful indicator as consumer activity makes up a majority of the U.S. Economy. The housing market remains strong as well, with growth across the board- housing starts, building permits, and new home sales. While this may not apply to every community across the country, or even here in Connecticut, national averages are strong. A high-level takeaway from this economic data is that families and individuals in the U.S. are working more, earning more, and spending more. A formula for continued growth. Corporations and private companies alike are responsible for growth as well on the heels of an accommodative regulatory environment and lower taxes, helping to support a multi-year boost.

Investors were rewarded for keeping their money in the market in a big way in 2019. The S&P 500 rose 29% during a year of spectacular equity returns, but the U.S. wasn’t alone. The MSCI EAFE (developed countries outside of U.S. & Canada) rose 18%, and the global stock index the MSCI ACWI (which includes the U.S.) rose 24%. It wasn’t just equities that rallied, as other asset classes joined along. Corporate bonds shined, with the U.S. Aggregate Index rising 9%, and the High Yield index more than 14%. In the municipal market, the U.S. Muni Bond Index rallied 7%.

While the final numbers for these indices are impressive, there were significant moments of uncertainty throughout the year. The recent price of gold proves just that. Gold finished the year above $1,517/oz, an increase of almost 18% from the start of the year. Gold is considered a safe-haven asset where investors flock in times of volatility or uncertainty. The U.S. and China trade war brought rising tensions throughout the year, keeping markets on the brink of heightened volatility. But ultimately, every time positive news broke, equities stabilized, and eventually closed the year on a significant uptick as the phase one trade agreement was announced. Trade progress eased global worries, which allowed European and Asian markets to regain confidence as well. Another source of clarity throughout the year stemmed from the Federal Reserve’s continued accommodative policy stance. This stance provided investors comfort that ultra-low interest rates are here to stay. The idea that the Fed could move rates even lower if needed has been a major component of the rally in bond prices. Elsewhere in the world, worthy of note for our portfolios, has been the soft landing for Brexit. With the Brexit election behind us, the world was provided another source of clarity, which ultimately allowed not only the U.K., but developed countries across the region to exhale as equities steadied.

Looking ahead to our portfolio strategy for 2020, we anticipate another year of growth, and our sentiment is cautiously optimistic- a theme we continue to support. Economists are predicting slow growth with a consensus target of 1.8%. We are believers that this number may end up higher based on substantial business investment, home building, and consumer spending boosting growth.

For equities, we remain rooted in an overweight stance toward value over growth stocks, where strong balance sheets and cash flows should better withstand potential volatility. In fixed income, the past several years, we remained focused on quality and short-term bonds. Our client portfolios have benefited from strong outperformance. But the change in expectations over the past 18 months has kept us on our toes. If you recall, during the summer of 2018, there were expectations of higher interest rates. Now, we believe rates will remain within this current low range, if not lower, throughout 2020. As a result of this expectation, as short-dated bonds mature, we have been and will continue to gradually re-introduce longer (mostly intermediate-term) corporate and municipal bonds to our portfolios. Even as we introduce slightly longer maturity dates, quality is the focus. Lastly, we continue to increase allocations to alternative asset classes to adequately diversify portfolio risk. In commodities, we will be increasing exposure directly and indirectly through gold, gold miners, MLPs, energy infrastructure, and broad commodity baskets. In addition to commodities, we have introduced increased allocations to real estate (both public and private), and private equity as segments of both markets look poised to provide opportunity ahead.

2020 will bring many notable events, but one event that cannot be ignored is the upcoming election. There will be a re-energized focus on politics for investors as the presidential election approaches. The divided nature of the political parties will introduce policy uncertainty, and we will be paying close attention. Will tax policy be altered? What public sectors will see increased spending? Where do trade talks go from here? These questions will ultimately find answers as November approaches, and early year policy tensions ease. It is sure to be an eventful year. We here at the wealth management advisory firm are focused, excited, and committed to supporting our clients with exceptional prudence and care. As always, we thank you for your trust, and look forward to helping you reach your goals in 2020 and beyond!

This material was prepared by Clapboard Hill Private Wealth, Index returns & charts provided by Bloomberg LP