2020 Investment Overivew

2019 proved to be a much better year for the markets – both stock and bond markets- than most analysts had anticipated. Through the market close on Monday, December 30, the S&P 500 total return index jumped 31.09%, the DJIA total return was up 25.01%, the MSCI EAFE (non-US markets) total return was up 21.96%, and the NASDAQ was up 34.82%. The results were driven by the bounce from the December 24, 2018 low (you may recall one of the worst 4^th quarters, and Decembers, we experienced in 2018), a more accommodative Federal Reserve, and trade/tariff exchanges that moved toward a thaw in the latter part of the year.

With the passage of the USMCA trade agreement, coupled with trade agreements with Japan and South Korea, and a potential Phase 1 agreement with China, investors were bullish on stocks most of the year. The bond market also trended higher as interest rates fell. The Barclays US Aggregate Bond Index rose 8.8% through market close on December 30.

For 2020, we expect that earnings will continue to grow, perhaps even more rapidly than in 2019, as earnings growth slowed some in the 2^nd and 3^rd quarters. We also expect that earnings will likely grow more rapidly than market prices, allowing price to earnings ratios to come down a bit. A reasonable expectation for stock returns in 2020 would be in the 5 to 9% range, depending largely upon earnings growth and how new trade deals might impact earnings.

We expect the Federal Reserve will continue to be accommodative in 2020. While we have heard some analysts suggest that the Fed may continue to lower rates another quarter point or two in 2020, we believe that rate will remain flat throughout the year. The US economy is growing at a nice pace, unemployment is at historic lows, consumer confidence remains high, and inflation continues to be in check. As a result, we see no reason for the Fed to become even more accommodative by continuing to lower rates.

We believe the best risk-reward investment strategy continues to be in large company stocks and mutual funds, and high quality bonds and bond funds with a slight increase in non-US stock positions. We anticipate non-US market performance to improve due to more attractive valuations. With more trade deals on the horizon, we believe there is greater potential in non-US markets than in years past. The Brexit situation should bode well for the UK, while being a net negative for Europe. As a result, a well-diversified, growth-oriented non-US investment strategy is where we believe the opportunity to be.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Mustard Seed Advisors and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Investing in emerging markets can be riskier than investing in well-established foreign markets. Investing involves risk and investors may incur a profit or a loss.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. he Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. The Barclays Capital Aggregate Index measures changes in the fixed-rate debt issues rated investment grade or higher by Moody's Investors Service, Standard & Poor's, or Fitch Investors Service, in that order. The Aggregate Index is comprised of the Government/Corporate, the Mortgage-Backed Securities and the Asset-Backed Securities indices. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results.