AUTHOR: Jason J. Roque, CFP®, APMA® TITLE:       Investment Adviser Rep – CCO TAGS:      GDP, CPI, PMI, S&P, Trade

There were some bumps in the road for what turned out to be a great year.  What was, what is, and what could be?

1^St Quarter

GDP grew an impressive 3.1%, core inflation averaged 2.17% (annualized), and ISM Manufacturing PMI averaged 55.  50 marks the line between expansion and contraction.  S&P 500 performance was 15.39%!  Strong performance, but it came on the heels of a 4^th quarter where the S&P 500 fell 20%.  In all, the first quarter benefited from better than expected GDP and corporate earnings.  A trade deal appeared all but done by the end of the quarter, which boosted sentiment.  However, uncertainties remained as Brexit did not happen as intended on 3/29/2019.

2^nd Quarter

GDP growth slowed to 2.0%, core inflation averaged 2.03% (annualized), and ISM Manufacturing PMI averaged 53.4 for the quarter.  S&P 500 performance was 1.96% on the quarter.  The second quarter saw the escalation of the trade war with China, where tariffs increased from 10% to 25%.  In response, the S&P 500 shed 11% in May.  It’s a testament to the rebound in June that the quarter’s performance was still positive.  Brexit?  Well… nothing happened.

3^rd Quarter

GDP grew by 2.1%, core inflation rose to 2.23% (annualized), and ISM Manufacturing PMI averaged 50.6.  S&P 500 performance was 1.19%.  Mainly, markets were impacted by uncertainty in the Trade war as tensions escalated in August.  The yield curve, additionally, inverted for the first time since 2007, leading to concerns about a potential recession.  Brexit?  Well… nothing happened.

4^th Quarter

Core inflation firmed to 2.33% (annualized), ISM Manufacturing PMI fell to 48.1, and S&P 500 performance improved by 10.37%.  Much of the performance came from abating headwinds regarding trade and yes, Brexit.  Earnings were negative for the year, but not by nearly as much as originally expected.  Trade came to a crescendo when the US and China announced a Phase 1 deal.  Brexit? Yes! After a decisive win for conservatives in the UK, Brexit is now scheduled to occur at the end of January.

Conclusion

It was a good year for stocks and looking ahead at 2020 there are reasons to think that could persist.  The slowdown in manufacturing can be related to a lack of corporate spending and fears on trade costs.  Both of those reservations should be cleared out making way for a potential rebound in manufacturing in 2020.  Inflation will need to watched.  If it firms, with fewer headwinds, we could see the Federal Reserve raise rates in 2020, which would increase volatility.

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