Stocks continued higher last week, as the S&P 500 rose by 1.65 percent to 3,221.22. That was another new all-time closing high and it left the benchmark index up 28.50 percent 2019-to-date. For the remainder of the year it would not be surprising if equities drift sideways or even pull back a bit following the best multi-week rally since March, especially with many traders likely eager for excuses to take profits ahead of the Christmas and New Year’s holidays that sometimes see thin volumes and noisy price action. Looking beyond any potential seasonal volatility, though, the latest Bank of America Merrill Lynch fund manager survey suggests that institutional investors expect the bull market to continue in 2020, and respondents even see the S&P 500 surging to 3,333 in the first quarter, a 3.47 percent increase from Friday’s close.
The near-term exuberance is likely a reflection of the recent removal, at least for the time being, of many investor fears, e.g. a government funding agreement, continued easing from the Fed via its repo market backstop, clarity on Brexit, and of course the Phase One trade deal between the United States and China. However, for the rest of 2020 surveyed fund managers have a more cautiously optimistic outlook due in part to the volatility that could result from the November elections (and earlier primaries). Although uncertainty about who will win the Presidency, as well as control of Congress, could easily exacerbate the swings in the market in 2020, historically election years have been a positive for equities. In fact, since 1928 (available data) the S&P 500 has posted a positive annual return during an election year nearly three-quarters of the time, with an average gain of roughly 14 percent. As for the few times the broad index did decline during an election year, the majority of these drawdowns occurred while the economy was also in a recession, something which the general Wall Street consensus has as unlikely in 2020. Altogether, even if equities do continue higher in the new year, it will not necessarily be smooth sailing due to the various headline risks still facing the market. Any investors unsure how to navigate this environment should consider 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 week, the positives included that homebuilder optimism surged, housing starts increased, building authorizations jumped, industrial production rebounded, capacity utilization rose, income growth picked up, consumer spending firmed, initial jobless claims decreased, total job openings exceeded forecasts, household inflation pressures remained muted, and Americans’ confidence in the labor market and overall economy improved. As for the negatives, mortgage applications declined, existing home sales fell, and gauges of regional business activity continued to send mixed signals. This holiday-shortened week the pace of economic data slows down considerably but there are still a few important reports on housing, manufacturing, and employment scheduled to be released.
What To Watch:
- Durable Goods Orders 8:30 AM ET
- Chicago Fed National Activity Index 8:30 AM ET
- New Home Sales 10:00 AM ET
- Survey of Business Uncertainty 11:00 AM ET
- 2-Yr Note Auction 1:00 PM ET
- Richmond Fed Manufacturing Index 10:00 AM ET
- 5-Yr Note Auction 10:00 AM ET
- NYSE Early Close
- SIFMA Rec. Early Close 2:00 ET
- Christmas Day
- Markets Closed
Sources: Econoday, BofAML, FRBSL
Post author: Charles Couch