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Rolling On: Stocks Finish Strong, Outlook Positive for 2020

By Kara Murphy

I rang in 2020 by leaving behind the Dallas sunshine to return, temporarily, to my roots on the frosty East Coast. My old stomping grounds were the perfect setting in which to take a proverbial walk down memory lane at the dawn of a new decade.

Key Takeaways

  • The U.S. expansion and bull market entered record territory in 2019, despite the overhang of trade wars and other geopolitical risks.
  • The U.S. stock market had its best annual performance since 2013, soaring over 30%, and the U.S. bond market also produced strong returns of nearly 9%.
  • The outlook for 2020 remains positive for both economic growth and the stock market, though more modest returns relative to historic norms are expected.

As I reminisced, my thoughts kept returning to March 2009 — when the U.S. economy was on the cusp of recovering from the global financial crisis and the current bull market was born, as was my first child. I was not only a new mother at the time, but an equity analyst covering the Financials sector, which seemed to suffer daily casualties. Maybe it was my sleep deprivation. Maybe it was the onslaught of gloomy headlines. But I sometimes found it tough to have the fortitude to stay focused on the long term, both as an investor and an analyst. I’m certainly glad I managed to look through the considerable noise, and here’s why:

Equity Markets

Since bottoming out in June 2009, the U.S. economy has enjoyed 10 years of steady economic growth, averaging 2.3% annually, according to the Goldman Sachs Private Wealth Management Investment Strategy Group (ISG) 2020 Outlook: Room to Grow1. At 42 quarters and counting, the expansion is now the longest in U.S. history—as is the current bull market. As measured by the S&P 500 index, stocks have generated a total return of nearly 500% — or close to about 18% annualized — since the market’s trough in March 2009.

Last year alone, the market surged 31.5% — it’s best showing since 2013 — buoyed by easing trade tensions between the U.S. and China, a trio of rate cuts by the Federal Reserve and better-than-expected corporate earnings in the third quarter.

On the heels of solid returns in 2019, we expect returns to be positive once again this year, although not as robust. While bouts of volatility are inevitable, ISG forecasts that U.S. equities will return about 6% in 2020, while non-U.S. equities represented by the EAFE – Europe, Asia and the Far East – and emerging market equities should outpace the U.S. by about 1%.

U.S. Sectors

Cyclical sectors were the clear winners in 2019, but not necessarily by a landslide. Cyclical sectors, like Technology, Financials and Energy, tend to do well when the global economy is improving. Defensive sectors, such as Utilities, Real Estate and Consumer Staples, usually hold up relatively well during turbulent times.

For much of last year, defensive sectors shined as investors sought safety amid heightened uncertainty surrounding U.S.-China trade and slowing global growth. Yet, as those risks receded at the tail end of the year, cyclicals regained momentum.

In a repeat of prior years, Technology was a major driver of market gains. It was the best-performing S&P 500 sector last year, returning a whopping 50.3%. Communication Services (up 32.7%) and Financials (up 32.1%) rounded out the top-three sectors.

Energy was the best-performing sector in December (up 6%) but had the worst performance for the full year. Still, it managed to return nearly 12% in 2019.

Fixed Income

Bonds delivered historically strong returns in 2019, buoyed by risk aversion among investors early in the year and the Federal Reserve’s rate cuts during the second half. The Bloomberg Barclays U.S. Aggregate Bond Index, a benchmark of the domestic fixed-income market, returned nearly 9% in total. In general, bond yields fall and prices rise when the central bank lowers interest rates, and the opposite holds true as well.

Every major fixed-income asset class saw gains last year — but longer-dated Treasuries, investment-grade corporate bonds and high yield bonds outperformed, returning 11%, 14.5% and 14.3%, respectively. In fact, high-yield (or junk) bonds were the best-performing fixed-income asset class in December (up 2%), benefitting from a stronger appetite for risk among investors.

What should bondholders expect in 2020? According to ISG, an encore of last year is unlikely. Interest rates are already low, and they’re expected to remain in a narrow range, because global growth is expected to be modest, and developed market central banks are more likely to lower rates, or ease monetary policy, instead of raise rates. So, bondholders should expect more-modest returns going forward. The ISG 2020 Outlook says high-quality U.S. bonds are forecast to return about 1-2% this year.

Indeed, if history is any guide, rates can stay low for a very long time. For example, the benchmark 10-year Treasury yield stayed below 3% for over two decades between 1935 and 1955, and below 2.5% between 1939 and 1951.

The Economy and the Fed

The U.S. economy proved once again last year that, in the words of former Federal Reserve Chair Janet Yellen, expansions don’t just die of old age2. And, in fact, we don’t expect to be penning its obituary anytime soon.

We do expect this expansion to live on in 2020, albeit at a slower rate of growth domestically and in developed markets more broadly, and at a higher rate of growth in emerging markets. A few reasons for our cautiously optimistic outlook:

  • Supportive monetary policy. Central banks are expected to maintain their current accommodative monetary policy in the U.S., Europe and Japan. The Bank of England may be the only major central bank of a developed economy to ease further, although forward pricing suggests rate cuts are more likely than increases across developed markets. China, meanwhile, is likely to use a number of monetary tools to support its economy amid an anticipated deceleration in growth.
  • An absence of economic and financial market imbalances.The Goldman Sachs Financial Excess Monitor is currently at a level below its historical average and below the levels seen prior to the last two recessions. The monitor is a proprietary tool for spotting vulnerabilities in the U.S. economy that reduce its ability to withstand such destabilizing factors as shifts in risk appetite, drops in asset prices and geopolitical shocks.
  • Healthy household balance sheets. Household debt payments in the U.S. as a share of disposable income stand at a historical low, having declined from a high of 13.2% in late 2007 to a 40-year low of 9.7% last year, according to ISG.

Of course, some of the risks that loomed large in the minds of investors last year have faded recently, but not vanished. The U.S.-China trade war, the threat of a disruptive Brexit, political uncertainty at home and geopolitical risks remain real concerns. So far, these risks haven’t managed to derail the U.S. economy or end the bull market, and we don’t see that changing anytime soon.

Again, bouts of volatility are inevitable, especially in a presidential election year. But the probability of a recession in the near term appears relatively low. ISG puts the current odds at 20-25%, down slightly from 25-30% last September.


As we kick off a new year and a new decade, we’ve certainly got plenty to celebrate. But let’s also try to prepare for what may come next when times are good and cooler heads prevail. As we’ve seen in the past, investor sentiment can shift quickly in response to negative headlines or economic surprises. So, take the time to speak with your advisor about your investment objectives, how close you are to meeting your goals and whether you’re taking the appropriate level of risk.

My own needs and risk tolerance have changed quite a bit over the past decade. In early 2009, I had an infant at home. I now have three school-aged kids who are inching ever closer to college. My family has grown and, thankfully, so too has my portfolio. As it turns out, growing a family is a lot like growing a portfolio: It’s a constant, iterative process. Luckily, your portfolio doesn’t require an exhaustive bedtime routine.

I and the rest of the Investment Team here at United Capital wish you a healthy, happy and prosperous new year.

Live richly and invest well,

Kara Murphy, CFA

Chief Investment Officer

  1. Outlook 2020: Room to Grow; Goldman Sachs Private Wealth Management Investment Strategy Group; published January 16, 2020. The Investment Strategy Group is a part of the Consumer and Investment Management Division of Goldman Sachs and is not a part of the Goldman Sachs Global Investment Research (GIR) Department. The views and opinions expressed by the Investment Strategy Group may differ from the views and opinions expressed by GIR or other departments or divisions of Goldman Sachs.
  2. Transcript of Press Conference with Federal Reserve Chair Janet Yellen, December 16, 2015, available at this link:

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    Index Definitions

    S&P 500 Index: A broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. It is a capitalization-weighted, unmanaged index that is calculated on a total return basis with dividends reinvested. The S&P 500 represents about 75% of the NYSE market capitalization.

    Russell 2000 Index: This index measures the performance of approximately 2,000 small-cap companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks; the index serves as a benchmark for small-cap U.S. stocks.

    MSCI Europe, Australasia, and Far East (EAFE) Index: This index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada.

    MSCI Emerging Markets Index: This index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. As of June 2009, the MSCI Emerging Markets Index consisted of the following 22 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

    Bloomberg Barclays U.S. Aggregate Bond Index: This is a market capitalization weighted bond index of investment-grade, USD-denominated fixed-income securities.

    U.S. High Yield Corporate: The Bloomberg Barclays U.S. Corporate High Yield Bond Index measures the USD-denominated, high-yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch, and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.

    U.S. Investment Grade Corporate: The Bloomberg Barclays U.S. Corporate Bond Index measures the investment-grade, fixed-rate, taxable corporate bond market. It includes USD-denominated securities publicly issued by U.S. and non-U.S. industrial, utility, and financial issuers.

    Bloomberg Barclays Municipal Bond Index: The Bloomberg Barclays U.S. Municipal Index covers the USD-denominated, long-term, tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds.

    S&P 500 GICS Sectors Level-1: In 1999, MSCI and S&P Global developed the Global Industry Classification Standard (GICS) to offer an efficient investment tool to capture the breadth, depth, and evolution of industry sectors. GICS is a four-tiered, hierarchical industry classification system. It consists of 11 sectors, 24 industry groups, 68 industries, and 157 sub-industries. Companies are classified quantitatively and qualitatively. Each company is assigned a single GICS classification at the sub-industry level according to its principal business activity. MSCI and S&P Global use revenues as a key factor in determining a firm’s principal business activity. Earnings and market perception, however, are also recognized as important and relevant information for classification purposes and are considered during the annual review process.

    © 2020 United Capital Financial Advisers, LLC, a Goldman Sachs Company. All Rights Reserved. 1/2020 / 562809

    Kara Murphy

    Kara Murphy

    United Capital Financial Advisers, LLC d/b/a Goldman Sachs Personal Financial Management (“GS PFM”) is a registered investment adviser and an affiliate of Goldman Sachs & Co. LLC and subsidiary of The Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management, and financial services organization.

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    Information and opinions expressed by individuals other than GS PFM employees do not necessarily reflect the view of GS PFM. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.

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