NEW YORK, N.Y. – If the history of the U.S. stock market is any guide, then the outsized rally of the U.S. shares this year might suggest that the market will have a more muted performance in the coming 2020.
This year, the benchmark S&P 500 index was already recording around a 28% increase. If the stock market closes this week for 2019, it will mark the top two annual performance since 1997.
However, there might be some disappointments for market players who are expecting the same optimism will drive the market next year. According to the history of the index, based on the research of the Bespoke Investment Group, since 1928, the S&P 500 index returns a 6.6% average in the following year after recording a 20% rally or more. It marks slightly under the 7.65 return for all the other years.
Further, strategists and fund managers say that there may also be several reasons that could suggest that the U.S. stock market will not continue its double-digit returns for the year.
According to the senior market strategist for LPL Financial, Ryan Detrick, the market tracked a superior increase this year following a historically lousy close for the 4th quarter last year. He said that the numbers from last year and this year are not primarily based on the economy, but instead, it speaks more of the market, realizing that a recession is not in sight.
Noting the S&P 500 index tracked its most significant decline last year since the financial crisis in 2008 over the increasing worry of market players that the trade war between the U.S. and China could push the economy towards recession. Fortunately, the decision of the Federal Reserve in January to change course from previous plans of increasing interest rates have strengthened the rally of the U.S. stocks this year.
According to the chief investment strategist at the Charles Schwab, Liz Ann Sonders, the Fed helped start a rally in the bond market that helped boosted the stocks of the dividend-paying sector who also forced the 10-year treasury yields towards a historic low, which all points towards concerns on economic strength.
The presidential and congressional elections in November 2020 will also be a significant focus of politically sensitive sectors in the market like healthcare, said Sonders. She further stated that another headwind in the market could forestall another series of outsized gains.
On the other hand, few on wall street have bearish sentiment for the 2020 market. While most in the market weren’t mostly concerned about the ongoing trade tensions and the impeachment of President Trump, there are a few signs of the economy going towards recession as the year progresses, according to the Credit Suisse Securities chief US equity strategist, Jonathan Golub.