Numbers - 2020
It is often said that hindsight is 20/20. So is the upcoming year, a numerical anomaly. Since numbers are one of my things, I thought I would riff on the value of hindsight and the need for foresight as we enter the upcoming year. Of course, I’ll focus on investing and opportunities to improve your financial health, but I may go on a tangent or two along the way.
In hindsight, the perfect portfolio this year was heavy equity exposure with an emphasis on U.S. large companies. I’ve mentioned this before in one of my blogs, and since then the divergence between U.S. markets and the rest of the world has grown larger. My guess is that investors are looking at future risks and opportunities and making the determination that despite our crazy, ridiculous political scene our business environment offers greater growth.
How could this be? Europe suffers from a general sclerosis epitomized by the Brexit mess. Emerging markets are struggling as both weakening economics and changing politics are at play. And the elephant in the room – China – is the target of those who believe in honest markets.
We are not alone in confronting unfair Chinese strategies. But, according to Max Fisher and Audrey Carlsen of the New York Times in an article last year, “as China grows more powerful, it is displacing decades-old American preeminence in parts of Asia. The outlines of the rivalry are defining the future of the continent.” Throughout Asia, relationships are changing and this results in new economic, military, AND political opportunities. Despite the rhetoric, it need not be an US vs. THEM situation. The Times article goes on to say: “Instead, most (Asian countries) are pursuing strategies intended to draw maximum benefit from both powers, minimize risks of angering either and preserve their independence.” Confronting China is a classic “Risk = Opportunity” situation for ALL parties and we need to watch it closely. Let’s hope world leaders remember we all benefit when the economic pie expands.
Year to date, the S&P 500 is up 24.4%. As I compose this blog, 108 of the 111 stocks on my computer screen are in the green. We are having another good day. The longest and most unloved bull market continues to grind higher. My favorite economist penned an article this week indicating his expectation for more of the same in 2020. Remember, the extra sauce in an expansion is innovation which enhances productivity – we do more with the same (or less) effort. Every day I continue to be amazed by new innovations and the creativity of young minds. And maybe even older minds.
The Michigan Consumer Sentiment indicator came in this morning well above expectations. The inflation expectation component was muted (2.3% long term inflation expectation). Finally, the gauge of current conditions stood at 115.2, a twelve month high. These are all very good numbers that help sustain our economic recovery. These numbers suggest that 2020 might be another very good year. Wouldn’t it be lovely (and ironic) if we had a 20% gain in the S&P in 2020? No, I am NOT predicting that, I said it would be nice. Very nice.
I close with final comments from Brian Wesbury, the economist I mentioned earlier: “So enjoy the good news you see the next couple of days, but keep in mind that healthy growth in consumer spending is exactly what you should expect in an economy where tax rates are relatively low, business regulation has slowed, and monetary policy isn’t tight. If we are right, we should see more of the same kinds of headlines for at least the next couple of years.”
I hope you have an enjoyable holiday. Happy 2020!!
Ralph McDevitt
December 6, 2019
Any opinions are those of Ralph McDevitt and not necessarily those of Raymond James.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Inclusion of these indexes is for illustrative purposes only.
