Around this time of year, we are predictably bombarded with year-end reviews of all shapes and sizes. You know, “The Top Stories of 2019” or “The Top Plays of 2019”. These dominate the airwaves during the holidays and certainly help run out the clock entering the new year. This year obviously, we were not only treated the “Best of’s” for the year, but also retrospectives of the decade that was the 2010s. The 2010s began as the U.S. was rebounding from the Great Recession. Innovation, job recovery and policy drove the economy. Sure, we know some of the other themes that dominated the decade: The meteoric rise of social media. Activism addressing all forms of inequality stood at the forefront – whether it was the Occupy Wall Street movement, #MeToo, Black Lives Matter or even climate change.
The decade was also marked by major disasters – Fukushima, Haiti, The Deepwater Horizon, Hurricanes Dorian, Maria, the California wildfires. Gun violence and terrorist attacks continued and so did conflicts between and within countries – shootings in Sandy Hook, Orlando, and Las Vegas as well as the attacks in Paris, Boston and Kenya.
But fear not; not everything was so gloomy. Despite some the more pessimistic skew in the themes of the decade described here, there was a lot of wonderful outcomes as they pertain to the economy, the breathtaking growth of technology, and the financial markets. In addition to our usual performance data, this month, let’s look at some data and anecdotes to consider as we close 2019 and enter a new decade.
Since 2009, the market exhibited extreme resilience in its recovery. Assets under management in U.S. equities is approximately 3-to-1 compared to World equities, and over 2-to-1 to taxable bonds. Whether it was the economy or a function of asset allocation, the United States experienced a recovery as well as significant performance (as exhibited in the chart above). Here are some of the great highlights from the last decade:
The Nasdaq finished the year/decade by posting its 11th consecutive positive year, up 39% in 2019.
This is the longest economic expansion in US history:126 months and counting.2010s are the first decade without a recession.
Fed balance sheet stands at $4.166T.At the pace of the last four months, it will hit a new all-time high by Spring 2020.
S&P 500 dividends hit new all-time high to end the year, up > 7% over the prior year
S&P 500 annualized dividend growth rate for 2010s:+10.4%; 2000s:+3.4%; 1990s: +3.5%
67 Central Banks pursued an easing monetary policy (rate cut/lower reserve ratio/asset purchases) while only 17 pursued a tightening policy
US High Yield Spreads stand at cycle lows to end the year/decade
High Yield default rates climbed ~ 100bps year over year to 3.2%
From a Price to Earning Growth perspective, this is the most expensive market in modern financial history
US Housing Market Index at its highest levels since June 1999
US Building Permits at highest levels since May 2007
US Housing Starts nearing highest level of current expansion
ISM Manufacturing falls to 47.2, lowest level of the expansion which began in June 2009
Apple is up over 73,000% since its IPO in 1980, an annualized return of 18.4%
The ratio of the Technology Sector vs. S&P 500 is at highest level since October 2000
High yield bonds (ex-energy) only yield 180bps above inflation – lowest level in history
The 2010s saw the slowest population growth in U.S. history
With unemployment standing at all-time lows in almost 50 years, the lack of wage growth has helped keep inflation low but also contributed to the demise of the middle class. How this plays out is anyone's guess, but we expect wage growth to pick up in the next cycle and that will result in higher inflation.
For 2019, it seems Large Caps still outperformed all other asset classes; Growth and Value were both up over 20%, but Growth was the clear winner. Small Caps were up high teens and Value did well relative to Growth. International investments were also up over 20% (as per asset class returns from JP Morgan Asset Management), but developed markets did better than emerging markets by approximately 4%. High Yield continued to show signs of recovery, but with spreads at 4.24% and default rates significantly under 3%, one should consider if additional returns justify additional risk. Our selection of funds and their change in Net Asset Value are below.
As we mentioned, the 2010s were a decade of significant recovery and growth in the United States and on a global scale. Technology advancements, a skilled labor force, and low inflation helped productivity grow while inflation stayed relatively low. Who knows what the 'roaring 20s will bring? But one thing is for sure: I hope it finds something to replace the "Selfie Kiss Face."