Main BOS Logo

Quarterly Summaries

2019 Quarterly Summaries

prev next

Review of Securities Markets, Fourth Quarter, 2019

U.S. stocks climbed to new all-time highs during the quarter as fears of a recession eased. U.S. economic data released during the quarter showed stronger than expected job growth and continued strength in consumer spending. Progress on the trade front also provided a tailwind for stocks as the U.S. agreed to postpone additional tariff increases on imports from China in exchange for an increase in purchases of U.S. agricultural products. The S&P 500 Index1 ended the quarter up 9.1%. For the full year, the S&P 500 gained 31.5%, which was its best year since 2013 and its second-best year over the past 20 years. Technology stocks continued their leadership and were the best performing sector in the fourth quarter (+14.4%) and the year (+50.3%).2

Foreign stocks also rallied strongly during the quarter, benefitting from the improved trade picture, a weaker U.S. dollar, and optimism around a potential resolution to Brexit. The United Kingdom is now expected to officially leave the European Union on January 31, 2020 with negotiations on details scheduled throughout the year. The MSCI AC World Ex U.S. Index (a broad index of foreign stocks) returned 8.9% during the quarter. Emerging markets, as measured by the MSCI Emerging Markets Index, outperformed developed markets with a gain of 11.8% during the period. The strength in emerging markets stocks was mostly driven by outperformance of countries in Asia (China, Taiwan, Korea) that stand to benefit most from improvements in U.S.-China trade relations.

U.S. bonds were mixed during the quarter. The perceived improvement in the U.S. economy led to a rise in yields for U.S. Treasuries while yields on corporate bonds, municipals, and mortgage-backed securities declined. Yield curves, which had previously been inverted (shorter maturities with higher yields than longer maturities), reverted to their normal upward-sloping shape. The yield on the U.S. 10-year Treasury ended the quarter at 1.92%, up 15 basis points from the beginning of the quarter. The Barclays Aggregate Bond Index1 rose 0.2% during the quarter while the Barclays 1-5 Government/Credit Index1 rose 0.5%. Treasury Inflation Protected Securities (+0.8%) outperformed conventional Treasuries during the period due to higher inflation expectations while hedged foreign bonds (-1.9%) underperformed as interest rates rose in major foreign bond markets including Japan and the United Kingdom.

Commodities markets rose during the quarter on higher-than-expected demand in an improving global economy. The Bloomberg Commodity Index rose 4.4% driven mostly by rises in oil and agricultural products. Gold rose 2.9% for the quarter and ended the year up 18%, its best year since 2010.

Predictably Unpredictable

The decade of the 2010s has officially ended and the investment results are in. Investors in diversified portfolios generally earned solid returns over the decade against a backdrop of persistently low inflation. U.S. stocks were particularly strong performers while asset classes that had led the way in the previous decade trailed in this most recent 10-year period. As we flip the calendar to a new decade, it is a worthwhile exercise to consider where we were ten years ago and perhaps learn a lesson or two from the process.

So let’s go back to 2009. Skinny jeans, Chuck Taylors, and the Black Eyed Peas were trending while moviegoers paid just $7.50 to see the premier of ‘Avatar.’ The S&P 500 Index dropped 29% during the first two months of 2009 before hitting what would be the low of the financial crisis on March 9th. The index then rallied an amazing 67% over the last ten months of the year. In the decade that ended in 2009, the technology sector of the S&P 500 Index underperformed the broad market with an annualized loss of 7%. Value stocks outperformed growth stocks by approximately 6% on an annualized basis.3 Small company stocks beat large company stocks by 4% annualized4 and foreign stocks outperformed U.S. stocks by about 2% per year.5

Despite the sharp gains in the second half of 2009, there was still a lot of pessimism in financial markets at the time. The stock market suffered two bear markets in the 2000’s and the S&P 500 Index had the worst annualized return (-0.9%) of any decade on record. Some were questioning whether investing in stocks even made sense anymore after the ‘lost decade’. In addition, there was a lot of concern over potential unintended consequences of the bank bailouts, the Fed’s zero interest rate policy and quantitative easing. Many were concerned that the Fed’s unprecedented policies would cause hyperinflation.

What we got over the last decade was in many ways the opposite of the prior decade and the opposite of what was expected by many. The S&P 500 Index rose 13.6% on an annualized basis over the 2010s which is well above the historical return for the index. Value, small cap, and foreign stocks underperformed during the last decade, in contrast to the prior 10-year period. Although scrutiny of the Fed’s policies continues, the increase in inflation that some expected from these policies has not materialized.

As the last decade ended, there was no shortage of opinions about what will happen over the next ten years. Just as some were questioning whether investing in stocks still made sense in early 2010, some are now questioning whether it makes sense to invest in foreign stocks or value stocks now given their relatively low returns over the last decade. The reality is that markets move in cycles. Given that these cycles are impossible to predict, the time-tested principles of investing in low-cost, diversified, research-based portfolios is more relevant than ever, and should remain relevant into the foreseeable future. Unlike skinny jeans or the Black Eyed Peas.

Written by Jeffrey Blanchard, CFA, Director of Research; [email protected]

Quarterly Review of Securities Markets: Total Return

IndexMarket109/30/19 – 12/31/19Year-to-Date – 12/31/19
Standard & Poor’s 500Large Co. U.S. Stocks9.1%31.5%
Russell 1000 ValueLarge Co. Value U.S. Stocks7.4%26.5%
Russell 2000Small Co. U.S. Stocks9.9%25.5%
MSCI All-Country World ex U.S.Foreign Stocks8.9%21.5%
Barclays 1-5 Year Gov’t/CreditU.S. Shorter-Term Taxable Bonds0.5%5.0%
Barclays Aggregate BondU.S. Taxable Bonds (Broad-based)0.2%8.7%
Barclays 1-5 Year Muni BondU.S. Shorter-Term Tax Exempt Bonds0.8%3.7%
JPMorgan Global Ex-U.S. BondsHedged Foreign Bonds-1.9%8.0%

Securities Markets Return Data Source: Morningstar


Key Economic Indicators

  • The latest U.S. GDP figures (third quarter 2019) showed the economy growing at an annualized rate of 2.1%. Consumer spending remained strong (+3.2%) while business spending contracted by 1%.
  • The U.S. employment report for December continued to show steady job growth. Nonfarm payrolls increased by 145,000 which was in line with consensus expectations. The unemployment rate was unchanged from the prior quarter at 3.5%, which is the lowest unemployment rate since 1969. Wages grew 2.9% on an annual basis.
  • The latest report on U.S. inflation showed an increase in November. The Consumer Price Index rose at a rate of 2.1% which was higher than the prior month’s reading of 1.8%. Core CPI (CPI less food and energy) posted an annual increase of 2.3% which was unchanged from the prior month.
  • The Federal Reserve lowered the Fed Funds rate for the third time this year at its October meeting but left the rate unchanged in December. Economic projections released at the December meeting suggest the Fed may stand pat for most of 2020, however, markets are currently expecting one rate cut next year.
  • The Bloomberg Commodity Index was up 4.4% during the fourth quarter. The price of crude oil rose 12.9% to $61 per barrel. Gold rose 2.8% during the quarter to $1,520 per ounce and the price of silver also increased 5.1% to $17.90 per ounce.


Key economic indicators compiled by Jeffrey Blanchard, CFA, Director of Research; [email protected]


1. See the table – “Quarterly Review of Security Markets: Total Return”, “Market” column for description of the index.

2. As measured by the S&P 500 Information Technology Sector Index

3. Russell 1000 Value Index versus the Russell 1000 Growth Index

4. Russell 2000 Index versus the Russell 1000 Index

5. MSCI EAFE Index versus the S&P 500 Index


To view important disclosures please visit this page.


Get B|O|S Perspectives
in Your Inbox