Dow Crosses 29,000 Points in January

2019 was a solid year for the U.S. economy and for the U.S. stock market.  At the start of the year stocks were coming off a steep sell-off.  In the 4th quarter of 2018 the S&P 500 lost nearly 20% from its high earlier in the year.  As 2018 closed the Federal Reserve was on an aggressive path to tighten the money supply.  It was raising interest rates in quarter point increments and projected three or four increases in 2019.  In addition, the Fed allowed bonds that were purchased under the Quantitative Easing program a decade earlier to drop off the balance sheet.  Bonds were maturing and not being replaced.  Investors feared this monetary policy would thrust the U.S. economy into a recession.

The Fed policy abruptly changed in January 2019 and with that so did the direction of the stock market.  Not only did the Fed not raise rates, it embarked on an easing policy and lowered rates three times in 2019.  It also stopped shrinking its balance sheet by buying bonds again.  With hindsight, the 180 degree change in the Fed policy probably had more to do with the strong stock market in 2019 than any other single factor.

However, the Federal Reserve monetary policy was not the only thing impacting the stock market in 2019.  The market had its ups and downs over trade policies, too.   Investors were swayed by headlines.  News of progress with China trade talks moved the market up, and news of renewed tensions caused the market to pullback.

As 2019 closed, Fed chairman Jerome Powell said he is in no hurry to increase rates in 2020.  With a presidential election looming, the Fed is unlikely to move interest rates in either direction.  Any change from the status quo could be viewed as political.

We expect the U.S. and China to sign a phase one trade agreement this month.  It is not as robust as investors hoped, but it is enough to calm trade tensions for now.  Also, on January 31st the UK is expected to exit the European Union.  If Brexit goes smoothly it should be positive for the stock market.

Just nine trading days into the new year, the market is continuing its upward momentum.  On Friday, January 10th the Dow briefly crossed 29,000 points for the first time ever.  It crossed 29,000 again on the 14th before moving slightly lower.  It has yet to close above 29,000.  Although there is very little difference between 28,999 and 29,000 round numbers have a positive psychological effect on the market.

Talk of a recession can still be heard, but if you take events which cannot be known out of the equation, events such as war, a terrorist attack, or a natural disaster, a recession in 2020 seems very unlikely.  We do not see conditions which are usually in place leading up to a recession.  Interest rates and inflation are tame.  Money is flowing freely for both businesses and consumers.  Stocks are not cheap today, but neither do they reach the valuations we saw in 2000 coming off the decade of the 1990’s.    The new year is off to a good start.

 

Written by Connie C. Guelich, CFP, AEP, CLU, ChFC.  This represents our view at the time of this writing and is subject to change.  This is not intended to be personal investment advice.   If you would like to discuss your own account, please don’t hesitate to call us.  We are here to help and welcome your call.

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