Market Share Newsletter Vol 2 Issue 1

Volume 2 Issue #1: January 7, 2020

January 7, 2020

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As we age, it is common to need glasses, contacts or have surgery to correct our vision. Likewise, as we enter the year 2020, one may start to wonder, “are the markets seeing clearly as this bull market ages?”

2019 ended very well for investors as the market perceived a number of current issues being resolved in 2020. A phase-one trade deal with China is scheduled to be signed in mid-January. Combine that with growth in the U.S. economy and increased U.S. consumer spending, it is easy to see how the market’s vision was clear as we ended the year.

We also see that it is unlikely for the market to remain clear for the entire year (as we have seen in the last couple days in the Middle East). We are still are in trade wars with nations other than China and have only completed a phase-one deal with them. The market will need to work through the impeachment and a final nomination for the democratic party candidate for President. Add in the issues in the Middle East and Europe and we will likely see some turbulence throughout the year.

Thank you for taking time to review The Market Share, we hope you find the information to be helpful as we enter the new year!

 
Paul Gifford, CFA
Chief Investment Officer
1st Source Corporation Investment Advisors, Inc.
GiffordP@1stsource.com
Erik Clapsaddle, CFA, CFP®
Senior Fixed Income Portfolio Manager
1st Source Corporation Investment Advisors, Inc.
ClapsaddleE@1stsource.com
 
Considerations for your portfolio

The Economy

  • The U.S. economy continues to show positive trends as the service sector expanded more than expected in December and based on data from IHS Markit, was at its highest level since July. It was the third consecutive month of expansion for prices charged.
  • The U.S. trade deficit declined to -$43.1 billion in November. This was the smallest monthly trade deficit in the U.S. since October 2016. Total exports have increased by 0.3% over the past year while total imports have declined by 3.8%. If the same trend continues through December, we would expect the improvement in net exports to add to GDP in the fourth quarter.
  • The Institute for Supply Management (ISM) reported a weaker than expected result in December for U.S. manufacturing and ISM has now reported manufacturing in contraction territory for five consecutive months. This was the lowest reading since June 2009.
  • Recent economic data in Germany has been better than expected as both retail sales and the overall service sector improved more than anticipated. Retail sales jumped by 2.1% in November against a forecast of 1%.
Economic Data: Recent
  Actual Survey Prior
GDP 3Q (third revision)   
2.1% 2.1% 2.1%
Durable Goods Orders -2.1% -2.0% -2.0%
New Home Sales 719k 732k 733k
Personal Income 0.5% 0.3% 0%
Economic Data: Upcoming
    Survey Prior
Change in Nonfarm Payrolls   160k 266k
Consumer Price Index (CPI) MoM   0.2% 0.3%
University of Michigan Sentiment 99.0 99.3
Retail Sales Advance MoM   0.3% 0.2%

Equities

  • The S&P 500 returned 31.5% in 2019, which was the best year since 2013 when it returned 32.4%. The NASDAQ, more heavily weighted towards technology and communication services, returned 36.7% in 2019. Small cap stocks returned 25.5% for the year and marked their third year of consecutive underperformance relative to the S&P 500.
  • The total return, which includes dividends for ten of the eleven sectors within the S&P 500, returned in excess of 20%. The lone sector below 20% was the energy sector, which returned 11.8% in 2019.
  • Information technology returned 50.3% in 2019 as Apple and Microsoft returned 89% and 57.6% to lead the way. Apple and Microsoft together now have market capitalization values in excess of $2.5 trillion—a value larger than the combined GDP of Portugal, Ireland, Greece and Spain.
Equity Index Values and Total Returns
  Value YTD 1-Year
S&P 500 3,246.3 0.50% 29.73%
Dow Jones Industrial Average 28,703.4 0.62% 24.80%
NASDAQ Composite 9,071.5 1.12% 34.59%
Russell 2000 (small-cap index) 1,663.3 -0.30% 19.76%
MSCI EAFE (developed intl.) 2,031.6 -0.25% 20.17%
MSCI Emerging Markets 526.6 -0.18% 16.73%
Federal Reserve's Inflation Target
Source: Bloomberg

Fixed Income

  • The Bloomberg Barclays Aggregate Bond index returned 8.7% in 2019 as long-term rates pushed bond prices higher. This was the best year for returns in this index since 2002.
  • A few fixed income highlights from 2019 that made it such an excellent year in returns were the 63 basis point decline in the 30-year Treasury bond, a 76 basis point decline in the 10-year Treasury note and a 14.5% return on the Bloomberg Barclays U.S. Corporate Bond index.
  • The Federal Reserve did not change their target rate in December. Federal Reserve chairperson, Jerome Powell, recently stated that it would take a “material” change in their economic and global outlook for the Fed to change their current target rate of 1.50-1.75%.
Fixed Income Index Yields & Total Returns
  Yield YTD 1-Year
B’berg Barclays Inter Govt./Credit 1.88% 0.26% 7.05%
B’berg Barclays US Aggregate Bond 2.25% 0.41% 8.96%
B’berg Barclays US Corp. High Yield 5.08% 0.26% 12.36%
B’berg Barclays Municipal Bond 1.69% 0.52% 7.69%
Key Interest Rates
  1/6/20 12/31/19 1/8/15
Federal Funds Target Rate 1.5-1.75% 1.5-1.75% 0-0.25%
3-Month LIBOR 1.87% 1.91% 0.26%
2-Year U.S. Treasury Note 1.54% 1.57% 0.61%
10-Year U.S. Treasury Note 1.81% 1.92% 1.97%
Prime Rate 4.75% 4.75% 3.25%
Federal Reserve's Inflation Target
Source: Bloomberg
 
 
DISCLOSURES

The information in this email was prepared from sources believed to be reliable; it is for informational purposes only and does not provide recommendations based on the investment objectives, financial situation, or needs of any individual or entity. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets. The information in this email is not a comprehensive statement of the matters discussed. Unless specifically indicated otherwise, this email is not an offer to sell or a solicitation of any investment products or other financial product or service or a confirmation of any transaction. If you have questions about the information in this email, please contact your trust administrator at 1st Source Bank Wealth Advisory Services or call 800 882-6935. Investment and Insurance products are:
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  • Subject to investment risks, including possible loss of the principal amount invested
1st Source Corporation Investment Advisors, Inc. is a wholly owned subsidiary of 1st Source Bank.