Below is a look back on 10 important stories in the markets over the course of the year.
(1) Record year for stocks and bonds: After a down year in 2018, U.S. stocks, as represented by the S&P 500 Index, returned 31.5% in 2019. Bond returns were also high as the U.S. Aggregate Bond Index returned 8.7%. These returns marked the best year for stocks since 2013 and the best year of the decade for bonds.
(2) US Stocks Continue to Lead the Rest of the World: U.S. stocks outperformed both the developed international markets and the emerging markets to cap off a dominant decade. The S&P 500 had better returns than the developed international index in 8 of the last 10 years and better returns than the emerging markets index in 7 of the last 10 years.
(3) Apple and Microsoft Continue to Excel: The technology giants each eclipsed trillion-dollar valuations, driving the market with returns of 88% and 57%, respectively. Other than a brief period in 2018 for Apple, this is the first time that a company, let alone two companies, has been valued at over $1 trillion.
(4) Government Bond Interest Rates Across the World Became Increasingly Negative: In August, the worldwide percentage of the government bond market that was carrying a negative interest rate rose to 25% ( CNBC). This post-financial crisis phenomena began as governments attempted to spur growth by making it costly for banks to hold reserves with the central bank in the hope that it would encourage lending and result in increased economic growth. There continue to be multiple drivers behind negative interest rates that may not let up anytime soon. This year also marked the first time that companies with "junk" bonds (bonds issued by corporations with a higher risk of defaulting on the loans) have traded at negative rates. (These subject companies are based in Europe where negative rates are prevalent)
(5) Investment Costs Fall Further: While fees and costs on investment products such as ETFs and mutual funds have been falling for years, a drastic step was taken in October as the discount broker Charles Schwab cut trading commissions on all ETF and stock trades from $4.95 to $0. This action was soon mimicked by TD Ameritrade, E-Trade, and Fidelity. The decision may have been in response to competition from newer fintech competitors such as Robinhood and the Cash App by Square that allow commission-free trading. Regardless, no trading commissions = better outcomes for individual investors.
(6) WeWork IPO Debacle Pressures Tech IPO Market: WeWork seemed primed for a huge $47 billion IPO until its registration document was heavily scrutinized. The heightened scrutiny led many to look further into the company's corporate structure, its business model, and the actions and practices of its founder. Ultimately, the company's potential valuation plummeted as public market investor interest fell and the IPO was delayed until at least 2020. The scenario likely increased the number of skeptics of recently IPO'd technology companies that also exhibit high growth but lack profits, such as Slack, Uber, Lyft, and Crowdstrike. Each of these companies ended the year well below their 2019 share price highs.
(7) Brick and Mortar Retail Closures Persist: The impact of the growth in e-commerce on traditional "brick and mortar" retail accelerated in 2019 with 9,300 store closures, an increase of 60% vs. 2018, according to Coresight Research (MoneyWise). In the largest closure, Payless ShoeSource, once a titan of discount footwear, announced that it would be shutting down its remaining 2,100 stores and going out of business. The shift to online shopping was further apparent in the holiday shopping period (November 1st to December 24th) as online sales rose nearly 19% vs. 2018, much faster than the 3.4% growth in overall U.S. retail (Online Sales Growth).
(8) ESG Focused Investing Moves Further Into the Spotlight: "ESG" stands for "Environmental, Social, and Governance". These funds analyze a company's performance in various areas such as its impact on the environment, its impact on the community, how it treats its employees, and how diversified its board of directors is (i.e. does the board include women? minorities?). The fund then invests in companies that receive high grades in these areas. Many large investment management firms are moving to take advantage of investors' growing interest in this type of investing and multiple suites of ETFs and mutual funds now exist with options to choose from. In the first half of 2019 alone, more money ($8.9 billion to be exact) flowed into such "sustainability" funds than in all of 2018, or any year prior (Morningstar). One thing to note is that ESG can be a broad umbrella term and it is important to look under the hood of these funds to make sure they really are targeting the areas of sustainability that you are looking for.
(9) Assets in Index Funds Pass Those In Active Funds For First Time: For the first time in history, the total assets invested in U.S. equity index funds became greater than those invested in actively managed U.S. equity funds. Investors continue to be attracted to the low-cost, tax-friendly nature of the ETF vehicle as they shed high-cost, underperforming active managers.
(10) U.S. Bull Market Trudges Along: Since the end of 2008, as of 12/31/19, the S&P 500 Index has returned an annualized rate of 14.68%, or a cumulative return of 351.04%. This has been a very prosperous decade for investors in the U.S. stock market, ending with a year in which the market battled off the merry-go-round of the trade war news cycle as well as news of weakening global economic growth. Investors continue to be weary that the end of the elongated bull market is around the corner and that skepticism could fend off excessive optimism and continue to support the current expansion.