2019 4th Quarter Outlook

Review of 3rd Quarter

During the third quarter, U.S. stocks rose by 2%, and are now up 21% for the year. Developed international stocks fell by 1% but are still up 13%, while emerging market stocks fell by 4% and are only up 5% for the year. Bonds rose by 2% for the quarter and 9% for the year.*

State of U.S. Economy

Below is a table showing key economic and market indicators (as of September 30)**:

As has been the case consistently over the past five years, the combination of low inflation and interest rates, low unemployment, and steady if unspectacular economic growth, has suggested a good economy for investors in both stocks and bonds. But let’s dig a little deeper.


Many commentators in the press have noted that stocks have been volatile over the past few months. Gather close – I have a secret to whisper to you. Ready? Stocks have always been volatile – volatility is their steady state. The unusual periods in the stock market are when stocks are NOT volatile. Stocks are volatile because there are hundreds of potential occurrences in the economy that can impact their valuation. Some of the aspects we’ve already mentioned – low unemployment, low inflation, low interest rates, and steady GDP are aspects that positively impact the valuation of stocks. Another major positive factor is increasing corporate efficiency – despite relatively modest growth in GDP, earnings growth has averaged 12% over the past four years, and according to analysts’ forecasts, such growth in profits is expected to continue into 2020.***

As we described in our last quarterly commentary, there are warning signs that have been impacting the markets negatively. Global growth seems to be slowing in Europe and China, and uncertainty caused by trade disputes involving the U.S. and Brexit creates more concern about a global recession, which would likely affect the U.S. The Survey of Professional Forecasters assesses the probability of having a contraction of quarterly GDP over the next year as about 1 in 4 – hence, they view a contraction as an unlikely but possible event.

Bond Market

It’s been a great year for bonds, mainly because at the beginning of the year, analysts were concerned the Federal Reserve would increase rates, and nine months later those same analysts are assessing the likelihood of a third consecutive rate cut by the Fed. While we recommend bonds as an asset class that provides steadiness and income to a well-balanced portfolio, going forward we do not expect such high returns as we have seen in 2019.


A common question we’ve been getting from our clients lately is that based on the past ten years, why should they invest in anything other than large company stocks? The S&P 500 has dominated all other investments (such as developed international stocks, emerging market stocks, small company stocks, real estate, and bonds) during the 2010s. Our short answer is if we were sure the 2020s would be exactly like the 2010s, we would simplify our recommendations and invest everyone’s money in large company stocks. However, if we roll the calendar back one decade, to the 2000s, we get quite a different picture – the S&P 500 had a NEGATIVE RETURN and underperformed all other asset classes. Investors with diversification in emerging markets were very well rewarded. While we don’t think the 2020s will look exactly like the 2000s, it also is unlikely to look exactly like the 2010s either.

* Source of returns is Morningstar, Inc. Past performance is not indicative of future results.

** Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, Standard & Poor’s, U.S. Department of Treasury

*** Source: Standard & Poor’s


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