The price action was choppy last week but the S&P 500 still managed to finish 2019 with a year-over-year gain of 28.88 percent, the best annual return since 2013. In the prior Kickstart we explained that historically such a substantial increase has often seen additional gains the following year, and the same even holds true for near-term stock market performance. For example, since 1927 the S&P 500 has posted an annual return of at least 25 percent on 18 occasions (excluding 2019). Nearly three-quarters of these occurrences saw additional gains in January (average increase of 4.55%, 2.14% full sample), and 89 percent ended the first quarter higher (average increase of 5.76%, 4.73% full sample). As encouraging as such statistics may be, past performance does not guarantee future results, and even if the bull market lives on in 2020 the likelihood of an increase in volatility remains elevated due to the upcoming corporate earnings season, primary elections, and various other potential headline risks.
Many savvy 401(k) investors, though, are perhaps less concerned about the possibility of intraday swings in stock prices because they understand that volatility is a common occurrence, and what really matters when building a retirement nest egg is the combination of consistent saving and a long time horizon. Moreover, updated EBRI data showed that just since the end of 2016 the average 401(k) account balance for younger (25-34), less-tenured (1-4 years) workers has jumped by 172 percent, while the S&P 500 has gained “only” 44 percent (through the end of 2019). Older workers (55-64) with at least five years of tenure saw their 401(k) balances rise by an average of 58 percent during this same period since these individuals tend to have much larger accounts that are less sensitive to both contributions and stock fluctuations. Altogether, these significant gains should provide more evidence of how routine 401(k) contributions and the long-term resiliency of the market can together help offset periods of heightened volatility and maximize compound growth. Additional assistance is available by regularly consulting with a professional financial advisor and as always, we are here to help with any questions you may have.
To recap a few of the things we learned about the economy last (holiday-shortened) week, the positives included that the nation’s trade deficit in goods narrowed, pending home sales rose, construction spending rebounded, corporate layoff announcements fell, and the number of Americans making first-time claims for unemployment benefits declined. As for the negatives, housing inflation firmed, consumer confidence cooled, and gauges of national and regional manufacturing activity weakened. This week the pace of economic data picks up with several important reports on the U.S. service sector, consumers, and employment scheduled to be released, including the potentially market-moving December job report from the Labor Department due out on Friday.
What To Watch:
- PMI Services Index 9:45 AM ET
- International Trade 8:30 AM ET
- Factory Orders 10:00 AM ET
- ISM Non-Mfg Index 10:00 AM ET
- 3-Yr Note Auction 1:00 PM ET
- MBA Mortgage Applications 7:00 AM ET
- ADP Employment Report 8:15 AM ET
- EIA Petroleum Status Report 10:30 AM ET
- 10-Yr Note Auction 1:00 PM ET
- Consumer Credit 3:00 PM ET
- Jobless Claims 8:30 AM ET
- Neel Kashkari Speaks 9:30 AM ET
- EIA Natural Gas Report 10:30 AM ET
- 30-Yr Bond Auction 1:00 PM ET
- Charles Evans Speaks 1:20 PM ET
Sources: Econoday, EBRI, FRBSL
Post author: Charles Couch