A new year. It’s a new year for U.S. stocks, which are higher amid headlines on new monetary stimulus measures in China. The People’s Bank of China cut the country’s reserve requirement ratio for banks, releasing a wave of cash into the financial system in an effort to boost lending. Stocks are also benefiting from hopes the United States and China will sign a limited trade agreement January 15.
An impressive 2019. Global stocks had an impressive year in 2019. The S&P 500 Index gained 28.9% for the year, the biggest gain among global benchmarks we track. The MSCI EAFE Index of developed-market equities climbed 18.4%, while the MSCI Emerging Markets Index rose 15.4%. In 2020, we recommend tactical investors consider focusing the majority of their equities allocations in the United States, with a modest allocation to emerging-market stocks and an underweight to developed-market stocks.
Global manufacturing stumbles. Global manufacturing stumbled again in December, according to the latest Markit Purchasing Managers’ Index (PMI) data. Markit’s Eurozone PMI fell to 46.3 in December, posting its 11th consecutive month in contractionary territory (below 50). Markit’s Germany PMI slid to 42.9 last month, its 13th straight month in contractionary territory. Manufacturing steadily deteriorated in Europe for most of 2019. While we expect PMIs to stabilize around these levels, it may be a while before the European manufacturing sector climbs back into expansionary territory.
Fixed income’s big year. In 2019, there were a lot of winners in fixed income. The Bloomberg Barclays U.S. Aggregate Bond Index, the domestic bond benchmark we track, returned 8.7% for the year, its best year since 2002. Both investment-grade and high-yield corporate bonds delivered double-digit gains, and even the weakest bond sectors we track posted respectable gains. The inverted U.S. Treasury yield curve was the biggest bond market story of the year, however, with an honorable mention going to negative-yielding sovereign debt. Our 2019 bond market recap will be posted today on the LPL Research blog.
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