• The S&P 500® was up 2.86% in December, bringing its YTD return to 28.88%.
• The Dow Jones Industrial Average® gained 1.74% for the month and rose 22.34% YTD.
• The S&P MidCap 400® increased 2.63% for the month and was up 24.05% YTD.
• The S&P SmallCap 600® returned 2.79% in December and 20.86% YTD.
It was a great year for those investing in products based on the S&P 500 (or who had at least a decent allocation to it), as the index posted a broad 28.88% gain (31.49% with dividends), as even the lagging Energy sector posted an 11.81% gain with dividends (a long way from the front runner, Information Technology, which was up 50.29% with dividends for the year). The decade had an 11.23% annualized rate (13.56% with dividends), as the longest-running bull market continued on (from March 9, 2009), with the help of low interest rates and an ever-lasting (at this point) spending consumer, posting a 15.56% annualized return (18.00% with dividends) for the decade. The bottom line was, if you were in it, you did well. Of course, if you were in it from Y2K, your return was 4.02%, or 6.06% with dividends (a 20-year bond would have served you better, and you could have slept at night)—such are the tales of timing.
While market celebrations were widespread (and would continue as year-end statements were delivered), with high hopes for January (when new money traditionally comes in; 71.4% of the time, “as January goes, so goes the year,” with the opening day a coin toss, having a 50.6% accuracy rate), uncertainty appeared more of a certainty than did market gains. Factors contributing to the uncertainty included political events, such as the impeachment proceeding and the current TV drama “Race for the Office” (which have had limited influence on the market to date, but the impact is expected to grow as they approach conclusion); trade and tariffs (which have had a positive impact, although they have been unsteady since March 2018); and the state of the consumer (which is becoming more correlated to the state of the economy), who continues to be true blue, spending more to make up for the lower-than-expected corporate expenditures. The other side of uncertainty is the stats. Unemployment remains at a 50-year low, creating some shortages; wages rose at a 3.1% rate (according to the November Employment report), which is acceptable given inflation; and interest rates are low and expected to stay that way for 2020 (negative rates still dominate in Japan). Earnings, while not at boasting levels for 2019, are relatively strong, with good cash flow (2020 is predicted to be a record year—the sun, and earnings, will always come out tomorrow, or at least in the second half). The U.S. economy continues to move onward and (mostly) upward, even if the course is unclear. The bottom line appears to be an expected return to more volatility (intraday and closings), as the maturity of the bull market gets put to the test of continued growth (to justify its level) for the first half of the year, and the potential political reality of reallocations and regulation perception in the second half (for any January 2020 management change).