An upbeat quarter added to a great year for the capital markets. The current economic expansion rolls on, and employment conditions are the best in a generation. The Federal Reserve made three reductions in interest rates during 2019, and we do not anticipate any more adjustments unless there is a dramatic change in economic conditions. Consumer confidence is high, while corporate executives are more hesitant regarding the coming year. The drama surrounding the Presidential election is revving up. The House has officially voted to impeach President Trump, although it is widely anticipated that the Senate will vote to acquit him. All U.S. policy efforts are hampered by the extreme partisan divide in Washington, and tensions abroad seem to be popping up everywhere. While 2019 concluded on a high note, and clearly goes into the record books as a “win” for investors, there does appear to be significant headline risk that could make capital markets volatile in 2020.
Recession worries subsided, as our nation’s current economic expansion ventures further into record territory. For the first time in U.S. history, we had a complete decade without a recession (2010 through 2019). Growth translates into jobs. The 3.5 percent unemployment rate is the lowest since 1969. Jobless numbers for minorities and teens are also the lowest in 50 years. Along with the surge in payrolls, the average hourly earnings rose by more than three percent, and marginal employees saw some of the biggest benefit. Wage gains were the highest for lower-income households, and more part-time workers have found full-time positions. People with jobs can afford to spend, and that was reflected in seasonal holiday sales that were up double-digits in 2019 over the prior
The Fed eased monetary policy by lowering interest rates three times during 2019, for a total of 0.75 percent, providing homeowners with a fresh opportunity to refinance mortgages at more favorable terms. The most recent Fed commentary suggests they do not plan any more rate reductions at this time, and they indicated a reluctance to return to tighter monetary policy unless they see a dramatic increase in overall inflation.
While capital markets rally on strength in our economy, discontent reigns within our politics. It has been a polarizing and contentious term for President Donald Trump. The House of Representatives formally voted to impeach him, only the third time in history such dramatic action has been taken against a President. However, it remains unlikely that President Trump will be removed from office. The Senate is widely expected to vote in favor of acquittal after a brief trial. The impeachment proceedings are symptomatic of the profound partisan gridlock that currently divides our country. Debate, compromise and cooperation have taken a back seat to winning by force, and news has become just another form of ratings-driven entertainment. As a result, Americans view Washington as a dysfunctional place. The Gallup organization conducted a poll in June of adults, ages 18 or older, living in all 50 states and the District of Columbia regarding people’s confidence in various U.S. institutions. The military tops the list, with 73 percent of the people expressing a “great deal” or “quite a lot” of confidence in our nation’s armed forces. At the other end of the spectrum, Americans have the least confidence in newspapers (23 percent), television news (18 percent) and Congress (11 percent). It is a sobering result that people have so little confidence in the ability of elected officials to deal with the important issues of our time.
This year’s Presidential election will be consequential, with candidates pushing vastly different approaches to overseeing our economy. Voters on the “left” and the “right” strongly disagree on tax policies, regulations and government initiatives that could have a significant impact on investors’ portfolios. In addition to the Presidency, all 435 House seats are up for election, as well as 35 of the 100 Senate seats. We expect the campaigns will be intense and dramatic, posing some headline risk for the capital markets and creating uncertainty regarding future U.S. interactions with other nations.
We are grateful for a rewarding 2019 and a historic period of U.S. economic growth. The New Year seems likely to bring some drama and potential volatility to capital markets, primarily driven by the events leading up to this November’s Presidential election. After the recent year’s generous stock market gains, we encourage investors to review their allocation to stocks to confirm that their participation is in-line with longer-term objectives and risk tolerance. It might be necessary to trim back on the stock market participation. We welcome your call if you would like to discuss this important topic. For now, that caution is set against a backdrop of an economy that is performing extraordinarily well, with low borrowing rates, excellent employment conditions and rising asset values.
We send our best wishes to your family for a healthy, happy and prosperous 2020.