Even with slow­ing eco­nom­ic growth, 2019 proved to be a ban­ner year for both stocks and bonds.  Favor­able pol­i­cy devel­op­ments occurred that helped buffer the glob­al man­u­fac­tur­ing reces­sion sparked by the trade war.  Key take­aways from the pri­or year show the U.S. is firm­ly in the late-cycle eco­nom­ic phase.  In the U.S., pri­vate invest­ment growth is wan­ing and pro­duc­tiv­i­ty is falling.  Mean­while, glob­al eco­nom­ic activ­i­ty is bot­tom­ing but becom­ing less syn­chro­nized with the U.S.  The pos­i­tive is, there are incip­i­ent signs that the glob­al trade and indus­tri­al reces­sion is pos­si­bly end­ing.  Glob­al mon­e­tary pol­i­cy (i.e. easy mon­ey) has boost­ed liq­uid­i­ty and there are signs the trade war may be eas­ing.

In the U.S., cen­tral bank activ­i­ty, led by the Fed, had a sig­nif­i­cant influ­ence on the mar­kets through­out 2019, includ­ing addi­tion­al accom­mo­dat­ing actions in the 4th quar­ter of 2019.  The Fed low­ered the fed funds rate by 1/4th  of a 1% for the third time in Octo­ber.  Addi­tion­al­ly, they announced they will pur­chase $60B T‑bills each month into quar­ter 2 of 2020 in order to pro­vide liq­uid­i­ty to short-term mar­kets.

The eco­nom­ic out­look for 2020 is large­ly sim­i­lar to what occurred in 2019, with a con­tin­u­a­tion of mod­est eco­nom­ic growth and mod­er­ate infla­tion at or below the Fed’s 2% tar­get lev­el.  With this out­look, a sta­ble but accom­mo­dat­ing Fed is like­ly to pre­vail once again this year.  Hav­ing said that, we antic­i­pate high­er volatil­i­ty than in years past.  The glob­al polit­i­cal cli­mate, U.S. elec­tions, Brex­it, glob­al trade nego­ti­a­tions, Iran, etc., sug­gests the finan­cial mar­kets will fluc­tu­ate through­out the year, buf­fet­ed by head­line news that may or may not have any influ­ence on actu­al eco­nom­ic out­put.

As always, a diver­si­fied port­fo­lio that include both U.S. and for­eign equi­ties and bonds is the best strat­e­gy to pro­tect your hard-earned wealth.