Stocks worldwide finished 2019 by recording gains typically expected over the course of a year in just a single quarter. Indeed, the S&P 500 index rose just under +9% (‘SPY’ ETF*), while the MSCI Emerging Markets index gained some +12.2% (‘EEM’). Following the pattern seen throughout the year, nearly all asset classes joined in the gains, this time excepting global fixed income, which fell by -1.3% (‘BNDX’) despite slight US Dollar losses. However, the real standout in non-equities was commodities, up +7.8% (‘DBC’) for the quarter with oil and precious metals both supporting the late-cycle rebound.

The large advances came as a surprise to many market analysts, many of whom had adopted a dour economic outlook over the course of the summer and fall. To be fair, news-flow was awful, including signs of decelerating global growth, Boeing 737-Max crashes, an inverted US yield curve, Brexit uncertainty, a crescendo of trade-war saber rattling, devastating global wildfires, and a US presidential impeachment, no-less. In the end, however, these worries were set aside for a major relief rally supported by continued jobs strength, stable inflation, massive global central bank stimulus, definition around Brexit, and promises of a ‘Phase I’ US-China trade deal planned for formal signing this mid-January.

Monetary stimulus included the US Federal Reserve’s third quarter-point rate cut for the year plus $60B per month in repurchase operations, which, together with European Central Bank and Bank of Japan actions is tracking towards $1 Trillion globally for 2020 (Thornburg, “The Long View: A Cross-Asset Class Survey…,” Jan. 2020). China is also providing fiscal stimulus via tax cuts — all with the goal of enlivening the worldwide economy to reboot itself through the recent lull to continue its record expansion, now headed towards its eleventh year.

And so, here we are in relatively uncharted waters of largely corporate-buyback- and stimulus-driven growth to new market records with both stocks and bonds richly priced by many measures. However, although the annual S&P 500 index gain exceeding +31% last year may feel extreme, it is worth recalling the steep fourth quarter losses of 2018, leaving the 2019 gains only 12-percentage points above prior market highs. In addition, historical studies suggest that such strong years are often followed by continued strength, albeit within rising bands of uncertainty (Barron’s, “The Stock Market Is Ending the Year with a Strong December…,” 12/30/2019).

2020 will show whether the concerted stimulus can translate into continued consumer strength and improved corporate earnings ahead. For now, markets are forgiving signs of short-term weakness on a bet this will ultimately come to pass. Without a doubt, new uncertainties will arise ahead between global political tensions and a US national election-cycle. In the meantime, we are nearly fully invested even as we closely monitor market conditions for any signals calling for capital protective trades in the months ahead.

* Not Individual Investment Advice; Dividend-adjusted proxy ETP data from Commodity Systems, Inc. & Allocations as of December 31, 2019; ECA assumes no duty to update any information in this presentation for subsequent changes of any kind.