The year and decade are over! The LPL strategists put a bow on one of the best years ever for stocks and bonds, along with the end of a very impressive decade for stocks.
The 2010s were a very impressive decade, with the S&P 500 Index up nearly 14% in annual return (total return). What is even more impressive, though, is this was the first decade to never experience a recession: Every other decade back to 1950 has had at least one recession. The LPL strategists noted that some of the good times last decade could have been a result of just how bad things were in the “aughts” (2000-09), as stocks were actually lower during that decade. In fact, the last time stocks were lower during a full decade was the 1930s, which led to solid gains in the 1940s and 1950s.
2019 was the best year for the S&P 500 since 2013 and the best year for bonds since 2002. Considering global markets, gold, and oil all saw nice gains, it was a really nice year for many investors. In fact, it was the opposite of what we experienced in 2018, which was the first year since 1969 that both stocks and bonds both declined. Although gross domestic product (GDP) and earnings were both much weaker in 2019 than in 2018, stocks bounced back nicely. As the LPL strategists discussed, much of this was due to the economy simply avoiding a recession last year. At this time last year, many investors were looking for a recession, and the strength in the U.S. consumer helped avoid that scenario. Additionally, the Federal Reserve went from hawkish to dovish, with three rate cuts along the way, which was another reason for the big bounce in stocks. Finally, the surprise of the year was the big drop in yields globally. This caught many flat-footed, but it was also a big reason why bonds had such a great year.
What could be in store this year? Well, as the LPL strategists noted, stocks and the economy have tended to do well after a big gain. In fact, 10 of the past 12 times the S&P 500 was up more than 30%, stock prices were higher that next year, with an average return of 15%. One big concern this year will be geopolitics, especially after the death of the Iran’s Maj. Gen. Qassim Suleimani. History has shown that Mideast flair-ups can push stocks lower initially, but usually the situations resolved within a few months. Overall, we continue to expect stocks to outperform bonds, emerging markets to outperform international developed markets, and for the economy to continue to grow around 2%, thus extending this record-long cycle of growth.
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