What an incredible 2019 for markets. The S&P rallied 28% and the NASDAQ 35% (give or take based on final 12/31 closing levels). 2019 returns are somewhat inflated from the low base of December 2018, when the market tanked on hawkish fed fears and the acceleration of the Trade War. Notwithstanding, 2019 was a banner year. If the market returns 1/3rd the amount in 2020 it will be a big success.

Rather than list off predictions, CJF will start to get back into the writing grove by highlighting a few themes and general dynamics:

The persistence of the global economic expansion
After some dicey moments in 2019, economic growth continued apace. Job market dynamics remain strong despite tremendous technological innovation and disruption, and wages are rising. Towards the end of the year, hope grew that softer economies, in China and Europe, may have bottomed. With stable and low interest rates, and some form of trade war de-escalation, it appears the odds of a 2020 recession are less than that of 2019, a good omen for markets that are priced for growth. Can the global economy evolve towards Australia’s multi-decade economic expansion?

Living with higher valuations
The S&P forward multiple bottomed around 15x and change last year, and has pushed back up above 18x forward earnings as we hit year-end. While the stock market’s P/E is on the higher side of what it has been the past 3-4 years, rates are persistently low, and stock market volatility is on the lower side too.

US Election year
Politics aside, most candidates that currently poll well are market friendly. A couple are distinctly market/capitalism unfriendly. If these candidates move up in the polls the market will take notice and the multiple may need to come down.

The above three items are likely to dominate market action in 2020. CJF will focus on these dynamics and also delve into more idiosyncratic investment themes that can perform well in a stable market environment.

Happy New Years!

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