A Remarkable Year

2019 was a remarkable year for the stock market. Despite the yearlong trade issues with China, the S&P 500 with income was up 31.5% while the technology laden NASDAQ returned a whopping 36.7%. Other issues such as Brexit, impeachment, the failed IPO of WeWorks and slowing profit growth failed to negatively impact stocks as we closed the year at or near all time highs.

In particular, the fourth quarter benefitted from the negotiation of Phase One of the U.S.-China trade deal. The market was also not impacted by the impeachment non-event. Healthcare stocks showed strength as Medicare for All looked to be more politics than reality for Democrats. Financials improved as bond yields found some strength and technology stocks continued their lead.

There are several reasons for the success of the stock market in 2019 and why such gains can be sustained into 2020 despite the large amount of uncertainty in the world today. Most importantly, the Federal Reserve has made it clear that they will remain on the sidelines in the intermediate term while money supply growth of 6-7% ensures money supply remains stimulative with robust liquidity. Phase One of the China trade deal provides a window where trade between the countries can continue. Brexit has awakened Great Britain and perhaps the rest of Europe, while new trade deals with Mexico and Canada will show benefits as well. Cash available to buy stocks remains high not only thanks to the Federal Reserve but deals like Bristol-Meyer’s purchase of Celgene and the potential purchases of Allergan by Abbvie and the buy of TechData by Apollo. These M&A deals have or will recirculates tens of billions into the market. Additionally, Warren Buffett’s Berkshire Hathaway has $120 billion available in cash, as cash available for deals abounds throughout the market. The negatives heading into 2020 remain centered on valuation, domestic politics and geopolitical concerns.

Stock market valuations remain high at 18x earnings. Analysts are looking for about $178 a share for the S&P 500 in 2020, a 9% increase, although we believe estimates look aggressive for 2020. Given 2020 is an election year, I suspect there will be volatility throughout the year exacerbated in part by continued tensions with China and the Middle East. Nevertheless, our base case and seemingly the market’s current expectation remains a political status quo in November including President’s Trump reelection as well as no further deterioration abroad. We generally agree with this forecast and look forward to the opportunities presented to us throughout the year.

Health and Happiness to all in the New Year and as always feel free to call if you need any assistance.





Joseph H. Ray


Joe Ray