The Navigoe Blog

2019 Year-End Market Commentary

A year ago, as we entered 2019, we were coming off of the heels of the worst year for stocks since 2008, which was the depths of the Great Recession crash. The S&P 500 was negative in 2018 for the first time since 2008, and all major stock market indices were negative, with many of them showing double-digit losses. 2019 began in the middle of what would become the longest U.S. federal government shutdown in history. The headlines, to say the least, were not uplifting.

Some headlines were a simple statement of fact, such as this one from The Economist:
Returns on stocks in 2018 were down across the board

Others, however, suggested that the worst was yet to come:
Stocks have plummeted. That doesn’t make them good buys” Fortune Magazine, Jan. 2, 2019
Why you should avoid stocks until after the Brexit deadline” MarketWatch, Jan. 4, 2019

As we sit here today in January 2020, despite all of the puns about “perfect 2020 vision into the future,” when it comes to stock prices, hindsight truly is the only thing that is 20/20. In this case, despite the negativity entering the year, 2019 was, by any measure, very good for investors.

Every major asset class was positive in 2019, and most by double digits. The Russell 3000 Value – a broad measure of U.S. value stocks – finished the year with a 26.26% gain, and the Russell 2000 Small-Cap U.S. stock index gained a similar 25.52%. International stocks also delivered strong gains. The EAFE Value index of large foreign value companies ended the year positive 15.50%, and small foreign companies did even better as represented by the EAFE Small Cap index, which gained 24.96%. Emerging Markets stocks also had double digit growth behind, finishing the year up 11.96% based on the MSCI EM Value Index.

Even the bond markets yielded better than average returns thanks largely to continued interest rate declines. The Barclays U.S. Treasury Bond index gained an impressive 6.86% for the year, while the shorter term Barclays U.S. 1-3 Yr Treasury Bond Index was up 3.59%.

As we begin the new year, and in fact, a new decade, expect the prognosticators to emerge once again with their latest crystal ball readings. We have already seen articles with confusing, nebulous headlines like, “Why Wall Street sees the stock market on the verge of a ‘melt-up.’” And the usual non-committal ones like this, “There is a 50% chance something bad will happen to the stock market soon.” It sounds like an actual prediction, but really they are saying that there’s a coin flip’s chance that an undefined bad thing will happen at an undefined time. The writer can’t possibly be wrong!

Other than knowing that the 2020 election cycle will dominate the domestic news, none of us knows what the year ahead has in store. Just as the pessimists entering 2019 were ultimately proven wrong, we caution against overoptimism following the strong returns of last year.

The good news is that you don’t need to predict the news to be a successful investor. Stay disciplined and maintain a long-term perspective. Take the daily news with a grain of salt and avoid reactive investment decisions based on fear or anxiety. Don’t try to predict future performance or time the markets. Instead, develop a sensible investment plan based on a strong philosophy—and stick with it. That is what we have been doing at Navigoe for over two decades.

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