Welcome to a new year and a new decade! The original neo-noir science fiction movie, Blade Runner, released in 1982, had us in flying cars by now. Acclaimed French-Canadian director Denis Villeneuve updated the timeline for the 2017 sequel with Blade Runner 2049. Maybe flying cars by then. For now though, we thought we would list a few of the decade’s more significant innovations once considered “sci-fi”; one big theme being greater connectivity:
Market Update
Overall, global capital markets exhibited remarkable resilience in 2019, rebounding from a severe decline that occurred in late 2018. Despite starting the year on a tentative note, they ultimately shrugged off a stream of negative headlines and uneasy sentiment to stage a robust recovery, with the fourth quarter capping off a year of broad-based gains across most equity and income asset classes.
Supported by low interest rates, slow global economic progress and healthy corporate fundamentals, global equity markets advanced in the fourth quarter and registered solid results for 2019, with many finishing the year just off their all-time highs. The MSCI World Index rose 6.5% in Canadian dollar terms during the last three months of 2019, bringing its gain for the year to 21.6%. And despite ongoing trade uncertainty and the developing impeachment drama, the S&P 500 Index, a broad measure of the U.S. equity market, was up 7% for the quarter and finished 2019 with an increase of 25.2%, including dividends. The more value tilted Dow Jones Index was up 19.4%.
Canadian equities also advanced in 2019, with supportive business conditions and strong commodity prices boosting results for most sectors. The benchmark S&P/TSX Composite Index climbed 3.2% in the fourth quarter, capping off an impressive 22.9% gain for the year. Overseas, markets showed a similar trajectory, with European developed market equities advancing amid an environment of easy monetary policy and Brexit uncertainty, and many markets in Asia posting positive results for the fourth quarter and the year as well. International markets (ex U.S.) ended the year up 12.8%.
Fixed Income
After moving to raise interest rates to a more “neutral” level from their record lows in 2018, the U.S. Federal Reserve reacted to weaker global economic growth and tepid inflation in 2019 by easing monetary policy. The central bank made three 25 basis-point cuts to its target rate through the course of the year, while many other international peers also lowered rates based on global economic concerns. The Bank of Canada, however, charted a divergent course, keeping its policy interest rate steady at 1.75% throughout the year. In this environment, 10-year U.S. and Canada government bond yields drifted higher in the fourth quarter, rebounding from their yearly lows in the third quarter. The FTSE TMX Universe Bond Index, which broadly reflects results for the Canadian government and corporate bond market, was down 0.9% for the fourth quarter but a gained of 6.9% for the year.
What’s the outlook for 2020?
This year
Looking forward, we forecast slow but positive global economic growth over the coming months, while interest rates are also expected to remain low by historical standards. While this type of environment tends to be generally supportive for businesses and asset markets, experienced investors are also preparing for a lower-return environment consistent with a mature business cycle, as well as periods of increased volatility. With valuations for many assets near record highs, a well-diversified, professionally managed investment portfolios with a focus on earnings Growth And Rising Dividends (GARD) can help to mitigate risks and maximize returns as they occur.
Longer term
It would be foolish to try and make great long term predictions, other than that the economy still goes through economic cycles. History tells us that attempts at market timing for this usually costs investors as markets go up far more frequently than they go down and returns at later stages of the economic cycle can be large. As always, your portfolio asset mix should be first and foremost based on your goals and life stage.
A strong year in the markets is a great time to take stock and revisit your retirement or estate plans. Should you have any questions about planning, your investments or the market outlook for the coming year, please remember that we are just a phone call away.