2020 Outlook – VETS Indexes

(January, 2020)

As we flip the calendar to 2020, it’s time for the team at VETS Indexes to opine as what we see ahead for the new year. Of course, as we do this, it is also important to reflect on what has happened over the past year. For starters, “the market”, as gauged by the S&P 500, had a banner year with a total return of over 31%. We’re sure not many investors saw that coming, especially bouncing off the December lows of 2,346 as 2018 closed out the year.

What made 2019 so interesting for equities is that there wasn’t one major or specific stimulus to put one’s finger on as to why stocks did so well. It is true that the Fed reversed course from the year prior and cut rates three times in 2019 to put the Fed Funds Rate at 1.50%. Was that the “silver bullet” that the market needed to have such a banner year? Monetary easing is always seen as a positive for equities, but many analysts and economists argued that rates needed to be cut due to weak corporate earnings’ growth and less than 3% GDP growth. One could argue, not necessarily a reason to be so optimistic about the economy and financial markets as a whole.

It just wasn’t equities that performed well, but, other asset classes did well too. Bonds, as measured by The Bloomberg Barclays US Aggregate Bond Index, or the AGG, were up over 9% for 2019. Commodities, as measured by The Thomson Reuters CRB Index, were up over 9% for 2019, although unable to take out the April highs of 189.68. Clearly, 2019 was a “risk on” year where we saw geopolitical risk throughout the year and political risk right here at home, as the House of Representatives paved the way for the impeachment process for President Trump.

So, what lies ahead for 2020? Of course, no one knows for sure, but, let us run down what’s on our watch list. We believe the trend is your friend when it comes to the market and certainly the S&P 500 continues to climb a wall of worry and grind higher. We feel this continues to be the case going forward, however, it won’t be clear sailing. Last year, the market didn’t see a 10% correction and we feel this sets up to be a year for more volatility and potential to see a larger pullback in the market.

Our belief isn’t that the Fed will once again change course with interest rates (being an election year, we feel the Fed is on pause for 2020). Our concern is more geopolitical. There is always geopolitical risk of varying degrees, however, the President Trump approved assassination of Iran’s Major General Qasem Soleimani is quite significant. Headline risk may weigh much heavier and we feel investors can become very nervous with markets at all-time highs, which can lead to profit taking and in turn can weigh heavier on the market.

We believe that the election doesn’t start to become a story until summer, unless Senate Republicans start to break with the President as Impeachment hearings move through the Senate floor. We believe that this will be a big year for tech as 5G becomes a reality. Homebuilder confidence, record low unemployment and an “unloved Bull Market” should continue to drive the market higher up a wall of worry although with more volatility and uneasiness than last year.

Finally, we believe that ETFs continue to be the investment vehicle of choice for many market participants both retail and institutional. ETFs are able to give investors access to so many strategies from passive to factor investing to impact investing (aligning one’s beliefs and principles). ESG, Impact and Socially Responsible investing were all very popular last year and we belief that continues to grow for 2020. Certainly, the extreme weather and ensuing wildfires in Australia will be a major topic for those who invest with the environment in mind. In closing, we would be remiss if we didn’t take this opportunity to inform readers that our very own VETS Index (VETSX) had a total return of over 39% for 2019.

More Information:
For more information on the VETS Index, please Contact Nicholas Antaki, Director of Marketing at nantaki@vetsindexes.com

Karl Snyder, CMT
Chief Market Strategist Managing Director