2019 will be a year marked by news headlines. We experienced rate cuts, a trade war, a government shut down, Brexit delays, impeachment proceedings, and yet the market has returned staggering positive results. The tailwinds of a slowly dissipating trade war coupled with economic stimulating rate cuts have propelled us to new all time market highs.
While the indices are printing new highs, these price increases have not been because of a direct increase in bottom line earnings for US companies. To date, the S & P 500 is on track to showcase just .3% in year over year earnings growth; the slowest earnings growth since calendar year 2015. Perhaps this indicates a late cycle economic expansion dating back to the 2008 recession; or perhaps we just experienced a lull in earnings due to the rate hikes we saw in 2018. 2020 earnings estimates are predicting more growth than 2019 as companies are beginning to experience the flow through effects of friendly interest rates and tax cuts.
2019 saw a plethora of IPO’s as companies felt the rate backdrop was a good time to raise capital and open their doors to new investors. Peloton, Lyft, Uber, and Pinterst all went public in 2019 just to name a few. Usually the hype with these types of names would result in wildly positive price fluctuations for these companies; however, that has not been the case in 2019 as investors have cautioned against companies that are failing to show a promising path to profitability. In 2020 we can expect more IPO’s to debut and it will be interesting to see how the market digests theses companies strategies for the future.
With impeachment proceedings all but destined to fail, we believe that headline will soon give way to election news. 2020 should begin to dial in focus on whether or not Trump will be elected for a second term, and who the democrats will elect to run against the sitting President. Since 1928, during election years the S & P 500 has been positive 16 out of 22 years. (For an interesting read on election years check out the FactSet article below)
In the last day of trading for the year, the markets are sitting relatively level with a mixed bag of economic numbers being released. The daily and weekly strength of the index is still overdone towards the upside, and because of this fact we would be more risk averse than enthusiastic about entering new equity positions. It would not surprise us for some sort of market pullback to ensue. Until then we find ourselves content in holding solid positions and collecting dividends as the market digests more information and settles into the beginning of 2020.
Happy New Year!
- Harvest Investment Strategies