December is traditionally one of the better months of the year, closing higher more often than any other month, and it did not disappoint this year. After a strong November the month got off to a solid start and moved higher every week of the month. Money managers compete for performance and with the strong market performance this year few wanted to show cash on their balance sheets at the end of the year. In addition, most investors had accumulated nice capital gains for the year and didn’t want to sell and realize more gains until next year. As a result, we saw a market “melt up” through the end of the year. At month end the S&P 500 had gained another 2.8% and closed the year with a gain of 28.9%, its second-best performance in the last 22 years.
The month actually began with 2 consecutive down days on concerns about China trade but reversed to close higher on encouraging news about China trade and a government report that a far better than expected 266,000 new jobs were created in November. The week ended with the S&P 500 +.2%. China trade continued to dominate the headlines during the second week with a Wall Street Journal report that removal of tariffs may be delayed which sent the market lower, before Trump refuted the report sending the market higher. The Fed left interest rates unchanged and said they don’t expect any change in 2020. A Trump tweet saying a trade deal was very close sent the market up nearly 1% on Thursday and we closed the week with the S&P 500 +.7%. News there is finally an agreement to phase one of the China trade deal helped make the 3rd week the best of the month. We also learned permits for new home construction hit a 12 year high in November and the Trump impeachment was greeted with a yawn, as most expect a Clinton like outcome. The S&P 500 ended the week with a gain of 1.7%. Christmas week is traditionally a week of quiet trading with an upward bias and that is exactly what we saw this year, with the S&P 500 ending the week .6% higher. The last 2 days saw the market edge lower as money managers balanced their books ahead of the new year.
January is traditionally one of the strongest months of the year for the market. Virtually anyone who has a 401k puts money into the market in January. That inflow of money tends to give the market an upward bias for the month. Coming off one of the strongest years for the market in more than 20 years, it would not be surprising to see some profit taking early in the year. 2020 is a Presidential election year and, since World War II, the average election year return for the S&P 500 has been 6.6% and the market has moved higher 78% of the time. In 2019 it was China trade that moved the market and in 2020 it is likely to be the election. It is a good environment for stocks and they continue to be richly valued as investors are betting the China trade deal will ignite earnings growth in 2020. We have been buyers on tradeable dips for many months and we continue to believe that is the correct route in the near term.
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