What a year 2019 was!
Amid the continuing threat of a full-blown US-China trade war, the unpredictable tweets of a US president on any political, economic or social issues and the impeachment saga of the same US President, the S&P 500 climbed a wall of worries to post the best annual return since 2013.
However, statistics can be misleading: let’s not forget that the last quarter of 2018 witnessed a gutwrenching correction, taking the S&P 500 down by 14%. All in all, from the end of September 2018 to the end of 2019, the US benchmark price index was up an annualized 10.75%, not too shabby by any means.
Financial markets tend to be more sensitive to monetary policies from central banks than to any other variables. After raising interest rates 4 times in 2018, the US Fed spooked the market into a nasty correction. It then reversed course by lowering rates 3 times in 2019 and pumped over US$ 200 billion into the system to stabilize short term markets. As the saying goes in the industry, “don’t fight the Fed”. In simpler terms, more and cheaper money makes markets go up. Whether it is healthy for the overall economy is another question.More