By: Spencer Israel
At the end of June, we wrote about the five biggest catalysts facing the stock market in the second half of 2019.
Well, it turns out we were half right. The top two items on that list—the trade war with China and monetary policy—dominated headlines and drove sentiment in the back half of the year. The bottom three items—Brexit, slowing economic growth, and regulatory uncertainty—were completely shrugged off.
With 2019 in the books, let’s take a look back at the four biggest headlines of the year.
1) U.S. Stocks Are Finishing Strong
Call us victims of recency bias, but the continued move higher in the U.S. stock market over the past two months has to go down as one of the most important developments of the year. Just 12 months after the worst fourth quarter since the Great Recession, the major U.S. indexes are sitting at new all-time highs.
All of the negative headlines heaped upon us in 2019—the trade war uncertainty, yield curve inversion, interest rate hikes, IPO weakness, overnight Repo madness, to name a few—don’t seem to have mattered when the dust settled. The only sector not up double digits this year will be energy.
According to Mark Shug, professor emeritus at the University of Wisconsin-Milwaukee, the strong year-end finish can be traced back to hopes of a trade deal and a growing U.S. economy.
“The U.S. economy is continuing to grow despite a sluggish manufacturing sector. Consumer spending remains strong and we remain at near full employment,” he said in a recent Lightspeed webinar, noting the Fed’s rate hike last December got the markets off to a slow start in 2019. “Yes, a recession is coming. The hard part is knowing will it be in 2020? No one knows exactly where we are on the business cycle. Growth cycles don’t wear out the way people do.”
2) The Market Hangs On Every Trade Headline
If there was one thing that drove the stock market this year, particularly in the futures market, it was the U.S.-China trade war. The enactment of several new rounds of tariffs, state leaders negotiating via the media, and a near-constant stream of contradicting statements gave traders and investors continuous whiplash.
As it stands, the two sides appear to have reached an agreement to “Phase 1” of a trade deal that would, among other things, require China to buy more U.S. agricultural products. However, nothing has been signed, details are light on how many “phases” there are going to be, and new tariffs between the two sides are still in place. So this story won’t be going away in 2020.
3) The Doves Take Over At The Fed
In terms of monetary policy, 2019 will go down as the year in which the Federal reserve completely flipped its policy stance. For the first time in 12 years, the Federal Reserve lowered interest rates. And they didn’t just do it once—they did it three times.
The Fed’s decision to lower rates by 0.25% in July, September, and October brought the Federal Funds Rate down to 1.75%. The stark reversal of the hawkish stance that had been in place since 2015 signaled that some Fed members have become concerned about certain economic indicators.
4) The IPOs Go Bust
What do SmileDirectClub, Uber, Lyft, Chewy, Slack, and Pinterest have in common? They all began the year as successful private companies valued at over $1 billion, and will all end the year as disappointing IPOs. The stocks of all six unicorns are down from their opening day trades, a surprising turn for companies that had garnered premium valuations in the private market.
But at least those companies were able to get as far as an IPO. The IPO market was also defined by who couldn’t bring their companies public in 2019, most notably co-working company The We Company and Endeavor—the talent management agency run by entertainment power broker Ari Emanuel. The former of those two experienced one of the greatest destructions of capital in history, as its valuation fell 80% from $47 billion in January to below $5 billion in September.
That’s not to say things were all bad on the IPO market this year. Beyond Meat’s massive run from a $25 at the IPO on May 2 to $239 on July 26—an increase of 856%—was one of the most dramatic IPO rallies since the dotcom bubble. And though the stock has given nearly all of those gains back, it’s still up over 200% from the IPO price.
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