by Sean Kelly
As we think about resolutions and goals for the new year – many of us gravitate to the traditional aspirations of losing weight, eating better, exercising regularly, and the perennial favorite — being better about money. With respect to the latter, that can take the form of spending less, saving more, or investing smarter.
2019 was a banner year for the financial markets. Despite a debilitating trade war, global growth concerns, and extreme political polarization — Wall Street basked in recurring record highs. For the Dow, the Nasdaq, and the S&P 500, the good times rolled unhindered and unchecked making it the best year for stocks in decades. ‘Fear of Missing Out’ paled in comparison to the ‘Fear of Not Having Enough’ as investors piled into equities head first, breakneck and full bore. So much for ending the year with a bang — the markets closed 2019 with a sonic boom.
But here’s the $85 trillion question. What will 2020 bring? Can Wall Street live up to the ‘go all-in,’ let it ride, devil-may-care attitude that dominated 2019? In order to do that, the three indexes will have to combine for some 37 new records. Possible? Anything is possible but there are a few things that could dampen the new year spirit.
The first is the over-leveraged U.S. consumer. While spending has sustained the American economy, consumer debt is rising and delinquencies are poised to hit decade highs, particularly on credit cards and auto loans. Then, there’s the question of interest rates. The Fed has been unduly restrained and rates remain at historic lows. Over 60% of current homeowners are paying mortgage rates between 3.00% and 4.90%. In 2000 the average rate was 8.05%, in 1990 it was 10.13%, in 1980 it was 13.74%. At some point, rates will have to rise and when they do, the ripple effect could crush the markets. And we cannot overlook the ever-precarious trade truce. If the ‘Phase One’ trade deal between the U.S. and China fails to hold or progress, look for global uncertainty to mount and the markets to elicit a nervous gasp.
While these risks are menacing, they’re being written off as things we merely need to worry about ‘at some point’ but not necessarily now. This type of hope-mongering, can leave investors flat-footed. YES — At some point, the markets will correct, the economic expansion will end, the economy will slow, and a recession will arrive. Until then, it’s a perilous game of market “Musical Chairs” and the critical question we must ask ourselves is where we’ll be sitting and what we’ll be holding when the music stops and “at some point” slides into a chair before we do.
So, as you hum along to another tipsy rendition of “Auld Lang Syne” and guzzle a little Moët & Chandon at midnight — keep a few things in mind. Global growth is decelerating, wealth inequality is soaring, corporate profits are sinking, business uncertainty is rising, and we have no clue who will govern the most powerful economy in the world in 2020.
All of this helped lift gold more than 18% in 2019 making it one of the few assets that not only advanced on all the many things that went right last year — but became a power hedge for all that could go wrong as we move into the next.