Although we dedicated innumerable posts in December to documenting 2019’s blockbuster cross-asset returns, I suppose we should run some manner of short tribute paying homage to what will be remembered as a truly spectacular year for assets of all stripes.
There are links throughout to additional coverage.
By the time the book finally closed on 2019, the S&P (basically) tied 2013 as the best year since 1997, rising 29% and adding a record $5.9 trillion in value. Donald Trump will probably suggest that total can somehow be deducted from the national debt (he’s floated that notion before). Big-cap tech rose an astounding 38%. It was the best year in a decade for the Nasdaq 100. Apple rose 86% for the year.
Voracious risk appetite was no impediment to gold, which had its best year since 2010, rising 18%.
US 10-year yields plunged 76bps on the year amid growth jitters and the epochal central bank pivot that juiced risk assets. At one point, 10-year Treasury yields were lower by 120bps. Although yields bounced off the August lows in Q4, the total stock of negative-yielding debt still sits above $10 trillion.
Investment grade credit had an astounding year too, posting returns close to 14%, the best in 10 years. In September, US corporates went on a record borrowing spree, tapping the investment grade market for $74 billion in a week, the most for any comparable period in data going back to 1972.
Spreads are the lowest in 22 months, and companies are all set to sell $120 billion in blue-chip debt in January, up 9% from last year.
Folks are still hunting for yield, as evidenced by the explosion of AUM dedicated to private credit.
As for volatility, FX vol. is the only thing that managed to make new lows versus the 2017 low vol. bubble. The bottom line for the VIX is that while 2019 was a great year for equities, “he’s no Janet“, so to speak.
The dollar finally rolled over in Q4, with risk appetite tied to the interim trade deal between the US and China undercutting the greenback, which has been stubborn despite the precipitous decline in the short rate and a trio of Fed cuts.
The euro benefited to the tune of a 3% quarter and the pound had its best quarterly performance in 10 years thanks in part to what counts as “clarity” on the political situation.
The dollar’s December slide pushed Bloomberg’s gauge into the red for the year, much to the delight of emerging market stocks and FX. Developing nation equities and currencies are perched at the highest levels since mid-2018, when excessive Fed tightening catalyzed a mini-meltdown in some locales.
Breakevens and crude moved higher in Q4 as reflation optimism proliferated, but remember, it’s important to keep things in context. For reference, here is that context:
Globally speaking, we can get as granular as you like, but the bottom line is that equities are at record highs. Even European stocks (a whipping boy of sorts) hit records.
Amid the euphoria, you shouldn’t forget to whom you owe your good fortune. Hint: You owe it to central banks, whose pivot resulted in a massive net easing impulse.
Given that, it’s no surprise that virtually all of the gains in global equities (and this is true for the US, Europe, Japan and EM alike) came from multiple expansion (the following visual was as of end-November).
Defaults in China surged – again.
Finally, if you’re looking for a reason to be positive on the outlook for 2020 (i.e., if you’re struggling with the prospect of equities climbing higher still after such a standout year), former Goldmanite Robin Brooks is more than happy to provide you with the following spin…
Many say this year's 30% gain in S&P 500 is unhealthy & bodes ill for 2020. But a lot of this gain is optics, because Q4 2018 was so bad due to trade tensions. Calculate gains from Sep. 30, 2018 and you get an annualized return of 8.4%. Less inspiring, but way more sustainable! pic.twitter.com/qqbZV3klGA
— Robin Brooks (@robin_j_brooks) December 30, 2019
It is great choosing your own starting point (I know one has to, I suppose) but the market is a continuum. Since 12/17 the S n P is up about 14%. It’s only because we plunged in 12/18 that the market gains look so good.