While equities have had a stellar year overall, there is good reason to not expect stocks to outperform as heavily next year
The S&P 500 is up by 28.5% year-to-date as of today with most major equity indices rising by comfortable double-figures percentage in 2019. Even with the civil unrest in Hong Kong, the Hang Seng is up by about 8% on the year so far.
The biggest tailwind for stocks this year has not been the fact that US and China have reached some form of trade deal at the end of it all. Yes, that no doubt has helped but this year is about the story of the climb down by major central banks around the globe.
The biggest of course being the Fed. Up until the end of last year, markets were still on the other side of the fence whereby the Fed was still seen more likely to raise rates rather than cut them instead. Six months later, how the tables have turned.
Among the major central banks, we have seen the Fed, ECB, RBA and RBNZ all take action to loosen monetary policy with the likes of the SNB and BOJ sticking with their easing bias and the BOE also looking likely to ease policy going into next year now.
In that lieu, market participants being caught on the wrong side of the fence at the start of the year certainly helped to exacerbate gains in the stock market this year.
However, with the Fed ending the year with a likelihood to keep rates unchanged next year and global growth showing signs of a mild recovery - not stellar by any means though - it may see major central banks be less aggressive on the easing wheel in 2020.
As such, that is one massive tailwind taken away from equities next year and is a reason to not expect a repeat of this year's form over the next twelve months.
