Companies traded on the S&P 500 increased in value by a record-breaking $5.7 trillion in 2019 after the Fed reversed course and cut rates three times. They might not get so much support in 2020.
The market capitalization of the S&P 500 index climbed from $21.03 trillion at the beginning of last year to $26.76 trillion on Dec. 31, an increase of 27.3%. The total return — share price gains plus dividends — for investors was 31.5%, the second-biggest advance this century, beaten only by a 32.4% gain in 2013.
The performance represents a rebound from 2018 when the total return index fell 4.4%, its first annual decline since 2008. The market avoided slipping into bear territory and will extend its record bull run into an 11th year in early March.
"The old maxim 'don’t fight the Fed' once again rang true in 2019," said Kelly Bogdanova, vice president portfolio analyst at RBC Wealth Management. The rate cuts "provided insurance for the economy," she said, while a healthy U.S. consumer base countered weakness in investment and manufacturing and helped to buoy U.S. stocks.
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Information Technology stocks led the way in 2019 giving shareholders a 50.3% return, as investors flocked to the sector amid an unprecedented expansion of technology into every corner of the economy. Semiconductor firms made up the three best-performing stocks in the year, with each of Advanced Micro Devices Inc., Lam Research Corp. and KLA Corp. posting gains of more than 100%.
Apple Inc., currently the world's most valuable company at $1.3 trillion, ahead of Microsoft Corp. and Alphabet Inc., gained 89% in the year. Retailers featured strongly at the other end of the pack, with Macy's Inc. losing 38.2%, the second-worst performance in the S&P 500, and The Gap Inc. dropping 28%, the fourth worst. Fashion retailer L Brands Inc. slid 25.3%.
The Communication Services sub index, which includes the likes of Alphabet, Facebook Inc., Walt Disney and Twitter Inc., was the second-biggest performer with a 32.7% gain, followed by Financials with 32.1%.
Volatility in oil prices throughout the year meant the energy sector was a laggard with a gain of just 11.8% in 2019. However, that fortune reversed in December where energy was the best performer. Total returns of 6.0% compared with 3.0% for the S&P 500 as a whole and energy stocks made up seven of the top 10 in the month.
Investor confidence remains centered around the outlook for the trade war. And while for now at least the talks between China and the U.S. appear to be heading in the right direction, a deterioration could restart talk of a downturn.
"In 2020 we can't write off the risk that there will be a slowdown in the second half of the year and the talk of a recession could restart again," said Alessandro Tentori, chief investment officer at AXA IM Italia.
Similarly, while stocks have had minimal reaction to the ramping up of tensions in the Middle East, the prospect of the 2020 U.S. presidential election will add more political noise, according to Jeremy Podger, a portfolio manager of the Fidelity Global Special Situations Fund.
"This, in turn, could mean that other parts of the global equity markets will become more attractive than the U.S., which at the moment is a consensus overweight position for most investors," Podger said in an email.