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Catalysts Affecting Your Investments

As you may recall, one year ago we were discussing the tug-of-war between fear and greed. The fourth quarter of 2018 presented some of the worst stock market declines in decades. 2019 was a much different story in which most investments, including domestic stocks, real estate investment trusts, foreign stocks, and bonds, had strong synchronized expansions.

There were extreme differences between 2018 and 2019, and a similar parallel can be made to the first two decades of the 21st Century. The first decade (2000-2009) was marked by two recessions and two market corrections in which the stock market lost roughly 50% of its value over each market correction. This was the worst financial slowdown since the Great Depression. The second decade (2010-2019) was marked by strong market performance. For the first time since the 1800s, this decade did not experience a recession and the S&P 500 index did not experience a bear market, i.e. a decline of 20% or more.

Forecasters did not foresee the volatility of 2018, the subsequent market boom of 2019, or the aggregate performance of the first two decades. AAFCPAs Wealth Management knows there are too many forces at work that affect market conditions, which is why we remain nimble and adaptive to changes in market dynamics.

What affected investments throughout 2019?

China Trade Deal: For much of 2019, the market reacted as expected to fiery rhetoric coming out of Beijing and Washington surrounding the trade war. Significant tariffs were threatened and, in some cases, implemented. As these events unfolded, uncertainty led to increased market volatility, including a mid-year market slump. This market decline was brief as the US and China agreed in principal to a phase 1 trade deal and a de-escalation of the trade war.

Fed Policy: Early in 2019, the Federal Reserve remained hawkish, which means supportive of relatively higher interest rates in order to control inflation. The Fed’s slow progression of interest rate increases included five increases between 2015-2017 and four in 2018 alone. Then, in the 2nd half of 2019, the Fed reversed course and lowered interest rates three times in an effort to keep the economic expansion from slowing.

Global Growth: As global growth slowed in 2019, many market forecasters cautioned of mid-year warning signs indicating a potential US downturn. For example, interest rates inverted, which has historically been an accurate predictor of a US Recession. The inversion was attributed to a slow global economy as well as economic conflict between the US and China. Alas, fear of recession faded as lowered interest rates stimulated US growth and the global picture improved and stabilized.

What catalysts are we watching for in 2020?

The Election: The 2020 US Presidential Election will certainly dominate headlines; however, we do not anticipate a significant market impact. If you examine the return of the S&P 500 Index for each of the 23 presidential election years since 1928, you’ll see that in only four of them was it negative. Elections do have consequences but, with divided government and seemingly never-ending government gridlock, major structural reform is unlikely.

Fed Policy: Currently, the US inflation rate is slightly below 2%, which is within the objective of the Fed; however, if inflation were to rise materially, we would expect the Fed to again raise interest rates in response to this recessionary pressure. Factors that may impact inflation include unrest in the Middle East and rising wages in a strong US labor market.

Trade Deal: It appears that the US and China are negotiating in good faith during phase 1 of the trade deal, however, there are still unknowns. Will the Trump Administration remain firm on contentious issues, such as forced technology transfer and intellectual property rights? Will China opt to wait out the results of the US Presidential Election in favor of more favorable terms? These negotiations may affect market performance in 2020.

Coronavirus: There is growing speculation among media that the coronavirus could hurt the global economy. In looking back at the SARs outbreak of 2002 and the MERs outbreak in 2015, there is no certainty over how investors will react. In late 2002 and into early 2003, the US markets dropped by approximately 5% when news first surfaced that China was experiencing a similar viral contagion, while there was almost no impact to our markets with the 2015 MERs outbreak. We urge clients to keep calm and focused on the long-term plan, as the impact on the markets from events like this tend to be short-term.

New Year’s Resolutions

Financial health always ranks high this time of year among those who make New Year’s resolutions. AAFCPAs Wealth Management serves as our clients’ ‘personal CFO’ to forecast, implement, monitor, and react in ways that keep financial plans on course and bring long-term goals into clear view.

AAFCPAs Wealth Management closely monitors catalysts affecting investments and we adjust portfolios and our approach to managing wealth as events dictate. We caution our clients on the perils of attempting to time the market and strongly discourage making investment decisions based on historical performance.

Investment planning is a disciplined process that begins with a well-documented strategy. Our solutions do not stop at plan design, because we know that even the simplest financial planning and asset allocation strategies need rebalancing on occasion—whether in response to market conditions or to changes in your life story, goals, or financial needs.

If you have any questions about your personal financial plan, please contact: Carmen Grinkis, PhD, CLTC, CFP® at 774.512.4061, cgrinkis@nullwealth.aafcpa.comAndrew E. Hammond, CFP® at 774.512.4143, ahammond@nullwealth.aafcpa.com; or your AAFCPAs Wealth Advisor.

About the Authors

Andrew Hammond
Andrew is a Partner and Wealth Advisor at AAFCPAs’ Wealth Management, a Registered Investment Advisory (RIA) Firm whose mission is to provide valuable peace of mind to those who share the awesome responsibility to manage wealth. He provides comprehensive and carefully designed financial plans for individuals & families, nonprofits & foundations, and retirement plan sponsors. Andrew joined our team of advisors after 17 years in financial services at Fidelity Investments. He joined AAFCPAs because of the firm’s deep tax expertise, individualized approach, and commitment to honesty, ethics, and developing meaningful relationships with each client.
Carmen Grinkis
Carmen is a Partner of Wealth Management within AAFCPAs’ Wealth Management practice, specializing in comprehensive financial planning solutions for individuals, families, business owners, nonprofits & foundations. She is a licensed investment adviser and a CERTIFIED FINANCIAL PLANNER™ (CFP®). In addition, Carmen has a PhD in Clinical Psychology and fifteen years’ experience as a practicing psychologist. This perspective benefits clients because so much of financial planning is life planning. Additionally, Carmen is an experienced entrepreneur and her strong combination of formal education, diverse work experience, and commitment to continuous learning results in innovative, financial insights.