Capital 19 Catch-Up – Jan 13th

Welcome back everyone to another year of the Capital 19 Catch Up. Following a successful trading year in 2019 where markets had gains across the board, here’s hoping for another positive one in 2020. We look forward to guiding you through it.

2019 was certainly a blow out when you look at the pure numbers. The S&P500 gained an impressive 28% for the year, ahead of the Dow which made 22% but behind the tech-laden Nasdaq which jumped a hefty 35%.

But as always, the numbers can be deceiving. If you cast your mind back to the end of 2018 you will likely remember the last three months of that year saw a near correction to the downside. That left 2019 starting with the advantage of a low base to work from. Which it did very successfully. But in reality markets, by the end of 2019, are only up around 10% higher than the 2018 highs.

Also bear in mind that if you weren’t holding Apple (AAPL) or Microsoft (MSFT) you missed out on half of these gains. These two trillion-dollar companies accounted for 14.8% of the gains in the S&P500 alone. Apple, which if you’ve read the Catch Up for the last decade you’ve got no excuse not to be holding, gained 85% for the year and was responsible for 8.2% of the entire S&P500 gains. Microsoft for its part gained 15% for the year and accounted for 6.6% of S&P500 gains.

Of course, you could have been holding one of the blowouts stocks in your portfolio in 2019 and be well ahead of the curve. If you had Advanced Micro Devices (AMD) for instance you would have received returns of around 150%! Lam Research (LRCX) was second best,  making 115% for the year, while KLA Corp (KLAC), Target (TGT), and good old Chipotle Mexican Grill (CMG) rounded out the top 5 with gains of over 90% each.

On the flip side, you didn’t want to hold Abiomed (ABMD) in your portfolio. It was the worst S&P500 performer of 2019, falling 48%. It was closely followed by department store operator Macy’s (M) who dropped 44.7%, and Occidental Petroleum (OXY) who lost 34.4%. Retailer Gap (GPS) and IT services provider DXC Technology (DXC) filled the next two spots each with losses of 31%.

There were solid gains across all of the sectors but of course, some performed better than others. Not surprisingly the technology sector came out on top with a 50.3% gain. It was followed by Communications services and the Financials who both made slightly more than 30%. Energy was the laggard, gaining only 11.8% for the year, while healthcare was the second-worst but still managed a 20.8% gain.

If you drill down further into the subsectors, the best performers included Semiconductors, defence and aerospace, electronics, and Credit services – you’ve got to love Visa (V) and Mastercard (MA). While the strugglers included areas such as clothing retailers, oil companies, wireless communications, and foreign banks and telecoms.

In 2019 the ASX finally got back to its pre-GFC highs. It took 2,974 days to gain back the losses from its March 2009 bottom. In comparison, it took the S&P500 only 1,386 days. By the time the ASX had gotten back to its starting point, the S&P500 had doubled. That’s why we choose to invest mainly in the US. It’s been incredibly successful for us over the last decade. Still, the ASX pulled in a respectable 20.8% gain for the year, even if it was following an 8% loss at the end of 2018.

The standout markets to be invested in globally were three that you wouldn’t expect. Russian stocks managed gains of more than 50%, while Chinese A-shares made 40%, a percentage also matched by the Greek market. All three countries benefitted from having relatively cheap stocks compared to the rest of the world, while China also had the benefit of making their stock easier to invest in for overseas buyers.

If you think that these three can continue to outperform in 2020 you can always buy yourself an ETF on the US exchange using the Capital 19 platform. For Russia you want the iShares MSCI Russia Capped with the code ERUS, for Chinese A-shares its the iShares MSCI China Small-Cap with the code ECNS, and for Greece, it’s the Global X MSCI Greece ETF under the ticker GREK.

News in 2019 was dominated by the trade war and the Fed reserve. Looking forward the trade war has taken a pause as the US and China look set to agree to a phase one deal this month. Hopefully, that will be the end of any more tariff hikes in the near future. And the Fed, after lowering rates three times in the last year, looks set to keep interest rates at historically low levels in 2020.

With these two issues relatively stable we could see some clear air for the start of 2020. It will depend on the economic data of course, and company earnings reports as well, and that’s assuming the Iran issue doesn’t flare up again (if it does it wouldn’t hurt you to be invested in the defence industry).

Wall Street will also have the US November elections in the back of its mind as the year progresses. The democrats will be choosing their candidates soon and the stock market will certainly prefer to have a centralising figure win the nomination rather than someone from the left. Success for Bernie Sanders or Elizabeth Warren may shake confidence in the markets a little. It would certainly give the end of year elections more relevance and will require some protections being placed on your portfolios, whether that be with hedging strategies or simply taking some money off of the table. If this situation does arise your Capital 19 advisor, and The Catch Up, will be there to suggest how best to do this.

In the shorter term, we have earnings season kicking off this week. The financials will lead us off with JP Morgan (JPM), Wells Fargo (WFC), Citigroup (C), Goldman Sachs (GS),  and Bank of America (BAC) all announcing in the first half of the week. Dow component United Health (UNH) will also report, along with the likes of Delta Airlines (DAL), Alcoa (AA), and Morgan Stanley (MS).

The phase one trade deal between the US and China is expected to be signed on Wednesday. Wall St will be looking to see the actual details of what is being signed as well as what we can expect when negotiations begin for phase 2. Let’s hope we don’t have any hiccups here.

Data-wise we’ll see inflation numbers out on Tuesday and retail sales for December, which includes the all-important Christmas shopping period, out on Thursday. Fed members will also be doing the rounds talking everything interest rates, but we’re not expecting any surprises here.

This year we’re also going to introduce something new in the Catch-Up. Each week we’re going to highlight one stock that trades on the US markets and tell you a little bit about the company and its history. An introduction of sorts. It will hopefully give you an insight into the sort of stocks we see trading in the US, and the opportunities we can get trading here which we can’t get anywhere else in the world. They won’t be recommendations necessarily, although it well could be. It may be a stock that we think is one to watch or perhaps one we think you should avoid at all costs. Either way, we hope you find it useful.