Bull & Bear as puppets on strings

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2019 Q4 Review | 2020 Outlook

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2019 4th Quarter Market Notes

by Horizon Investments

The fourth quarter capped off an outstanding year for markets across the board. Domestic equities, as measured by the S&P 500, rose 31.49% in 2019.
International equities lagged domestic shares by about 10% last year, returning 21.54% (S&P Global Ex-US BMI). Emerging market equities did a bit worse on a relative basis than their developed counterparts, returning 18.42% (MSCI EM) in 2019. Within the U.S., as measured by their respective S&P indices, value equities slightly edged out growth on the year. In the fixed income markets, the benchmark 10-year U.S. Treasury rate fell 77 basis points over the course of 2019, while the 2-year Treasury rate, highly
sensitive to Federal Reserve policy, fell 92 basis points. This fall in rates led to a total return for long-term U.S. debt of 15.09% (ICE U.S. Treasury 20+ Year) over the past year. Spreads on riskier debt issued by both investment-grade and high-yield corporations fell steadily on the year, helping propel the benchmark Bloomberg Barclays U.S. Aggregate Index to a yearly total return of 8.72%.

Market leadership shifted in Q4

Considering only the strong yearly return numbers quoted above as a guide, one might naturally assume that the best places to have been invested in Q4 were the equity and long-term government debt markets in the U.S. — but that wasn’t the case. Against the trend in place for the rest of
the year, international equities, as measured by the S&P Global Ex-US BMI, returned 9.19%, slightly besting the 9.07% return of the S&P 500. Emerging market equities did even better in the fourth quarter, returning 11.84% (MSCI EM). Domestically, value equities outpaced their growth counterparts by 1.61% on the quarter. And long-term U.S. Treasuries? They fell 4.24% in Q4, while the broad-based U.S. Aggregate Index rose 0.18%. While the fourth quarter was a good one for markets, the trends that had been in
place for the year just didn’t hold. In fact, it paid to do the opposite. So the question is, what changed?

 

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