With the closing of the 2019 year, we also closed a decade. From an investing standpoint, not only was it a very rewarding year; but the past decade helped ease the investing pain and frustration of the first decade of this century.
Let’s jump into a brief review regarding the past year and add some interesting tidbits regarding the just completed decade.
Our first look is at the economic growth of the United States as measured by the Gross Domestic Product (GDP). Our forecast for the 2019 GDP growth rate was 2.8%. We will most likely end up in the 2.3 – 2.4% range. Uncertainty with respect to trade issues between the US, China and the European Union (EU) as well as political uncertainty throughout the world were all contributing factors to the differential in our forecast and the final GDP growth rate.
GDP growth rates have slowed from a four percent annual rate in the 1950’s to just over an annual two percent GDP growth rate during the past 10 years. The growth rate slowdown is a little bit surprising given the enormous innovative changes in technology. At least some of the headwinds to GDP growth rate can be found in a decreasing population growth in the U.S. both in terms of birth and immigration as well as the baby boomers becoming more fully entrenched in their retirement years.
We expect GDP growth to be around 2.2% next year. We anticipate some relief in the trade/tariff war with China and expect the EU economy to bottom out in the first half of the year with a little positive momentum as the 2020 year closes out.
At the beginning of the recently completed decade, the S&P 500 had a valuation price of 1,123.58. With the closing of the 2019 year and decade, the S&P 500 traded at 3,230.78. For the decade the S&P 500 averaged just over 14% a year, assuming dividends were reinvested. The stock market was generous in its returns and re-established itself as a viable player in the investing world. We had forecast a return for stocks of 15% or greater – the S&P 500 delivered a return of over 31% with dividends reinvested!
We anticipate a stock market that grinds out a positive return for the 2020 year in the 7 – 10% range. Valuations for stocks are beginning to approach the stretch range and we believe 2019 may have borrowed some of 2020’s promise. We begin the year 90% invested in our equity allocation and believe we will have opportunities to put our reserves to work as the year progresses.
On January 1, 2010, the US Treasury 10-year interest rate was 3.35% - we closed the 2019 year with a 1.92% interest rate. Interest rate declines go all the way back to the Paul Volcker era at the Federal Reserve. Paul Volcker, in the late 70’s – early eighties, made a daring move to escalate short term rates to kill off the rampant inflation left over from the oil embargo/Vietnam War/Wipe out Poverty efforts of the previous 15 years. Volcker’s moves came at the end of the Jimmy Carter’s presidency and the first term of Ronald Regan’s presidency. Since the Volcker era, interest rates have been on a steady decline for the past 40 years. Paul Volcker’s courageous move in the late 70’s, early 80’s is a legacy of his insight and resolve to fix a problem – he passed away in December 2019.
Barring an unforeseen event, we anticipate the Federal Reserve to make no changes to the short-term interest rates until after the election late this year. We think the Federal Reserve will be reactionary rather than anticipatory in their next interest rate moves. Despite a little lower economic growth rate forecast for the year, we expect the interest rate on the 10-year US treasury Note to close the 2020 year in the 2.05 – 2.10% interest rate area.
With the close of the 2019-year, Cannon Capital Management is excited to celebrate its 12th anniversary. We are extremely grateful for the opportunity to work with each of our incredible clients and are deeply honored by the trust and confidence you place in us.
We are please to announce that Wendi Bench joined our ranks in December. Wendi will be helping Carolyn in making sure we deliver exceptional and timely service to each of you. Our full staff right now consists of seven people: Clint, Carolyn, Chace, Chris, Linda, SueAnn and Wendi.
We wish you success in all your endeavors, health and happiness for you and your family in this new year!