The fourth quarter was the polar opposite of 2018’s fourth quarter as the global equity markets rallied. The FOMC added liquidity to address problems in the repurchase market. There appeared to be progress in the US/China trade war. The global fixed income markets however, paused their rally as the total amount of negative yielding debt fell from a high of over $17 to $12 trillion dollars, still some 40% higher than year-end 2018.
During the last three months of 2019, the S&P 500 was up over nine percent, the Dow Jones Industrial Average was up nearly seven percent and the NASDAQ returned 12.31%. On the fixed income front, the iShares iBoxx High Grade Corporate Bond Exchange Traded Fund (ETF ticker: LQD) was up 1.46% while its high yield version, the largest “junk-bond” ETF by assets (ticker: HYG), was up 2.48%. Gold climbed nearly three percent, closing above $1500 per ounce.
Despite a pause by the FOMC in the easing cycle, they continued to support the bond market by periodically adding liquidity. Barring an escalation in the trade war or a worsening Middle East conflict, we expect little change in FOMC interest rates policy in 2020.
In political theater, Democrats successfully impeached President Trump in the House of Representatives, for only the third time in US history. Next, America will likely watch the Senate proceedings early in the first quarter. In all likelihood it will unfold as ‘Clinton Redux’, impeached but not removed from office. Simultaneously, the Democratic candidate field continues to narrow. At this moment, there appear to be six serious contenders for the nomination. More on that next quarter.
On the international front, Brexit is imminent. England will leave the European Economic Community (E/C) on January 31, 2020; but will take at least the balance of 2020 and probably longer to extract itself from its various E/C commitments. North Korea is not likely going to denuclearize. Phase one agreement in the US/China trade war is to be signed in the next few weeks. Although phase two negotiations are on the horizon, any additional signed agreement(s) may be beyond the November election.
Our search for undervalued assets is never ending. Nevertheless, we urge investor caution in light of the continued longevity of the ten year equity bull market. Stay tuned!!