2019 in tweeted charts!

Below is a relatively concise overview of financial markets in 2019 using a selection of charts I tweeted throughout the year. While this probably aggravates the already pronounced calendar-year thinking of investors, it also offers potential insights to the, at times erratic, behavior of financial markets. For example, looking back chronologically towards 2019 reveals that while there was an awful lot of negative news surrounding ‘the trade war’ there was also a continuous stream of positive news. Most of this was related to a game-changer swing in monetary policy. As in many years since the financial crises, central banks were the most dominant factor in financial markets in 2019. Those who were confident enough to rely on them, once again did very, very well.

January

In January, most investors were still digesting the massive downturn in equity markets that shaped the last months of 2018. Also, there were numerous charts that revealed just how negative investors had become in such a short period of time. Earnings expectations, which tend to go up towards the end of the year, plummeted spectacularly. This would set the bar for positive surprises later on very low.

Despite the slump in equity markets and the vast amount of uncertainty it caused, keeping an eye on the things that could go right seemed a sensible thing to do. Most, but not all, the items on the list were realized at some point in 2019.

February

Earnings revisions, an important driver of future equity performance, fell to levels comparable to previous growth scares, which didn’t end in a recession. With hindsight, the fact that they did not fall further was a positive for markets.

Meanwhile, all incoming data related to trade and manufacturing were miserable. This would stay like this for the remainder of the year. Obviously, the trade war between the US and China was a major factor here, but US President Trump ballooning US GDP growth artificially by lowering taxes, resulting in a traditional inventory overhang in the year after, also was of major importance.

Another important, and perhaps underestimated, positive was positioning. The downturn of late 2018 made many investors incredibly cautious keeping a lot of cash on the sidelines as the market recovered. For most this pain trade continued throughout the year.

March

The growth scare that hit markets late 2018 also made central banks cautious. The Federal Reserve went too far and had to go into reverse, resulting in yet another massive leg down in global bond yields. The promise of even more monetary stimulus would show up not only in bond markets, but in equity markets as well.

The following chart just underpins that conclusion.

April

By April financial conditions in the US were the loosest in 25 years. With hindsight a good time to buy some equities.

May

Meanwhile in China, growth continued to slow. Again, the trade war amplified this, but was not the main reason why. China’s economy would slow in any case, with deleveraging and demographics at work. Expect no change in 2020.

For me, 2019 would be a great year no matter what happened on financial markets. My second child, a baby girl, was born.

Back to the underlying stream of positives that helped markets reached record-highs repeatedly in the remainder of the year. Buybacks. With bond yields extremely low, capex and economic policy uncertainty extremely high, many companies stepped up their buyback program.

Trade, however, kept making headlines. The Chinese yuan, which became one of the major risk-on risk-off indicators started to weaken as the dispute between the US and China grew.

June

And that provided some really, really scary charts, like Singapore electronic exports, often seen as a bellwether for global earnings growth. In May, electronic exports were down a whopping 31.4% year-on-year.

A year in ‘tweets’ is not complete without bitcoin. Fortunately, it crashed USD 2000 in a matter of minutes in June. Yet, bitcoin remains the best performing asset class in 2019, although I don’t think it’s a true asset class for all investors at this point in time. Having said that, I’m also under the impression that there has been a lot of progress again this year, making bitcoin an asset to at least keep an eye on.

Meanwhile, bond yields kept falling as GDP growth slowed and markets anticipated of more central bank stimulus. The amount of negative-yielding debt took out the record-high of 2016. The amount of negative-yielding debt would rise all the way to USD 17 trillion(!) before coming down as much as USD 6 trillion.

By June, markets were pricing in rate cuts by the Federal Reserve and the central bank would live up to those expectations. Three times to be exact.

July

The U-turn in central bank policy resulted in some historical charts, like yield curves turning completely negative.

Parallel to the trade war, the Brexit saga continued. Seldomly have I seen such interesting, but above all ineffectient policy making. As investors, by definition, can not deal with uncertainty, the British Pound crashed to levels close the post-referendum level.

By July, nobody believed in value anymore. By now, everybody believes in value again. In between, one of the biggest 1-day outperfomances for value. Being contrarian helps, most of the time.

August

Argentina made the headlines, and it wasn’t for something good. It’s stock market (MERVAL) managed to realize a one-day drop of 48% in USD. With that move Argentina replaced itself on the second spot on the list of biggest 1-day losses in equity markets.

In August, the trade war escalated, with US President Trump surprising markets by announcing another round of trade tariffs.

September

In September, a majority of the world’s global central banks were easing again. This has been THE dominant factor for markets in 2019, and not the trade war.

By this time, more pieces of the puzzle started to fall into place. The Global Economic Surprise Index breached zero for the first time since April 2018, and the number of charts, showing that Manufacturing PMIs were likely to improve from hereon, accumulated quickly.

The trade war continued to blur and complicate things. The wall of worry that equities had to climb remained steep. The Chinese yuan dropped to its lowest level against the USD in more than 10 years.

October

Gold too had a great year. At the time of writing, the price of gold is up 16%. Recession fears, ever lower bond yields and trade uncertainty all contributed to its stellar performance. For next year, things look upbeat as well. Recession fears have receded, but are likely to come back somewhere next year. Next year, inflation could come into play as well. Anyway, there was an interesting paper published by the Dutch Central Bank on the function of gold, which was also quickly picked up the bitcoin community.

The US unemployment rate dropped to its lowest level since 1969. The already-deleveraged US consumer can extend this economic cycle for longer as unemployment rates go lower.

Obviously no bull market is without risk. The rise and rise of civilian protests throughout 2019 is worrisome. In most cases the reason for these protests in evident: inequality. I suspect that this trend will continue in the coming years, as societies have grown skewed. It is in the interest of all to make these societies more balanced. The path towards that, however, is likely to be rocky.

We have reached the final quarter of 2019, which is highlighted by fresh all-time highs in equities all over the globe. Monetary easing gets priced in, as well as a marginal improvement in GDP growth and a de-escalation of the trade war.

November

But the massive rise in equity prices brings other uncertainties. The 30%+ return has been accompanied by falling earnings. At some point, valuation will start to impact performance. Based on current circumstances, however, it’s reasonable to assume that some earnings growth will return next year. Especially now that a phase 1 trade deal has been agreed upon.

December

We are already experiencing the longest equity bull market in history. The question for next year will be: ‘how long can it last?’. A little bit longer if you ask me. The real trouble starts when investors see the end and/or the limits of monetary easing on the horizon. Sweden has shown recently, we might be closer to this happening than most of us think. Happy Holidays!

 

 

 

 

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