2019 was a good year to be invested in the markets. Locally, we’re just hitting double-digit returns, which includes dividends, while Europe is up some 20% and the US, again, leads the way with the S&P 500 almost 25% higher for the year. It’s green all round, but a word of caution…
The US economic expansion is the longest on record and the return is the second-best, with the dotcom bubble of the 1990s the only better bull market – also remember in that bull market the Nasdaq doubled in value in 1999. The problem is that nothing keeps rising forever and, at some point, the US economy and market needs to contract, or at least slow down.
But three things have made this US expansion different to the previous ones. It started off from massive lows after the 2008 to 2009 financial crisis, which was the worst in almost a century. Secondly, the response to that crisis included low interest rates around the globe that continued fuelling share purchases in the search for returns. Thirdly, much of the S&P 500 returns have been driven by the technology giants, including Apple, Microsoft, Amazon, Facebook and Alphabet Inc. (Google’s parent company). The difference with the dotcom bubble of the 1990s is that all these companies are generating real profits. (Also see cover story on p.26).
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