2020 1st Quarter Outlook

Review of 2019

May we all experience many investing years like this. U.S. stocks rose by 32% during the year. Developed international stocks and emerging market stocks did not fare as well, “only” rising by 22% and 18%, respectively. Even boring ole bonds went up by 9%.*

To understand why it was such a good year, we need to go back to the commentary we posted exactly a year ago. At that time stocks had just fallen 14% over the previous three months, and many investors were beginning to panic. At that time, we offered three reasons why we were hopeful for the upcoming year:

  • “The Federal Reserve has suggested that the steady stream of interest rate increases may be coming to an end.” Not only did the increases stop happening, but the Fed cut rates by ¾%. This fueled the bond market rally and also helped stock market values.

  • “Analysts’ forecast data suggest that the fears of trade and slowing growth will not be severely impacting corporate profits, and it’s those profits that drive stock market valuations.” While corporate profits did not fully meet expectations, they did rise, and the concerns of trade wars are much diminished.

  • “Compared to the average for the past 20 years, stock market valuations are relatively cheap.” That was indeed the case – the price-earnings ratio was far below its long-term average, which explains a large part of the outstanding 2019 return for stocks.

State of U.S. Economy

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

It’s been generally the same story for the past 10 years – slow and steady growth, declining unemployment, and low interest rates and inflation. Yawn. Sometimes boredom is a good thing.


We are looking at a strong economy, low interest rates, strong projected earnings growth, and decreasing concern about adverse trade consequences. That would seem to bode well for stocks. However, I must turn the famous Franklin D. Roosevelt quote on its side – “the only thing I have to fear is NO fear Itself.” After a great year, and, as we discussed in our 2020s outlook, an amazing decade, investors seem a bit over confident, resulting in the current price-earnings ratio being near its highest point in 20 years. If earnings slip a little, or if there are more threats of trade conflict, we could experience a decline in values.

Bond Market

It seems unlikely that the Federal reserve will change interest rates in the near future. Rates are definitely not too high – short-term Treasury rates are lower than inflation. On the other hand, after three straight rate cuts, there would be little justification for a rate increase. For those reasons, we anticipate little movement by the Fed, and, consequently, a relatively calm bond market.


Broadly, we see a capital market that seems appropriately priced. While the price-earnings ratio for stocks is relatively high, that level is justified by the positive signs in the economy. Interest rates might stay at their current levels for some time. It seems prudent to maintain a steady investment strategy.

* 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

This update is provided by Savant Investment Group, LLC (“SIG” or the “Firm”) for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. No portion of this commentary is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Certain information contained in this report is derived from sources that SIG believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio. SIG is an SEC registered investment adviser that maintains a principal place of business in the State of California. The Firm may only transact business in those states in which it is notice filed or qualifies for a corresponding exemption from such requirements. For information about SIG’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov.


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