The 31% gain for the S&P 500 Index in 2019 was the best since 2013 and the second-best in the past 22 years. Gains were extremely broad-based, with double-digit gains in most asset classes, including fixed income.
The financial markets are ending 2019 on a wave of positive momentum, with the benchmark S&P 500® stock index surfing through record territory during much of Q4. With a new calendar year on the horizon, these favorable trends for stocks appear set to continue.
With fading exogenous fears, a strong domestic consumer and accommodative global central banks, the balance of risks seem to have shifted from the downside to the upside over the past several months. Investor confidence has bounced, Wall Street analysts are adjusting numbers higher and corporate executives are expressing greater optimism.
Wall Street analysts have been taken off guard by the strength of equity markets this year. Following the weak performance in the fourth quarter of last year, most analysts in January cut expectations for the S&P 500 this year to roughly 2,900. With the S&P 500 currently near 3,150, analysts have been forced to upwardly revise 2019 expectations. The outlook for 2020 remains quite modest, with the average forecast only 3% higher than today.
For November, the S&P 500 returned 3.6% (9th positive month this year), bringing the year-to-date total to near 27%. If the year ended today, this would be the best year since 2013 and third-best since the technology bubble.
With the 26% total return this year (best since 2013) with heavy reliance on P/E expansion, there is some justifiable concern about what 2020 brings. The average Wall Street analyst target implies just a 5% gain from current levels. A trade deal teamed with accelerating earnings and the boost from the recent Fed rate cuts could lead to upward revisions.
