Market review: lessons investors can learn from 2019

Andrew Milligan

In his last market review of the year, we asked Aberdeen Standard Investments’ Head of Global Strategy, Andrew Milligan, which events have had the biggest impact on markets in 2019, which investments and markets are ending the year on a high, and what investors can learn as they invest for 2020.


Which events do you believe have had the biggest impact on investment markets during 2019 and why?


We must start with trade – based on some of the tweets from President Trump and statements from President Xi in China. On a day-to-day basis, markets have slavishly followed the ebb and flow of the debate about the future trade policy between the world’s first and second largest economies.

In January, markets were seriously considering the scenario of a trade war, although fortunately by October they became convinced that one was very unlikely. However, the timing of any agreement remains uncertain, as both sides look for the other to blink first over the final details. This could affect investor confidence again into year end.

Central bank policy took centre stage

The three interest rate cuts by the US Federal Reserve were another important factor for investors, especially the start of the rate cutting cycle in the summer. This began to convince investors that the Fed would act to prevent a recession.  

There were other important central bank decisions too, for example the European Central Bank adopting quantitative easing (QE) again in the autumn, despite opposition from some of its governors. However, the Fed is de facto the world’s central bank, and rate cuts in the US took away the risk of a sharp rise in the US dollar which could have hurt many emerging market borrowers. 

An example of a central bank not taking much action was in China. Markets had expected rather more support to bolster the slow-growing Chinese economy. However, on balance the government decided to take a series of small steps, pulling the levers of power as new financial problems appeared – ensuring the economy remained ‘stable’ if not fast growing. 

Brexit uncertainty lessened

Closer to home, the votes about Brexit in the UK Parliament in the autumn were important. There has been a small risk over the past year of a disorderly Brexit departure from the European Union. But those votes demonstrated that the UK would look for some sort of agreement and, on that basis, there was revived interest in sterling and sterling-based assets.

Tech and manufacturing enjoyed differing fortunes

The tech cycle has been important in 2019. Although overall US stock market profits slowed towards zero year-on-year in 2019, certain sectors such as technology have done much better. The general ability to grow revenues has been helped by more signs that firms want to invest in productive software, that data centre demand remains strong, while the 5G, smartphone and semi-conductor cycles have all started to look more positive going into the winter and 2020.

Turning to manufacturing, the slowdown in business surveys worried investors. The major US manufacturing sector ISM survey declined steadily during the year as manufacturing weakness broadened out. It reached a low point in the autumn, back to the lows seen in 2016. Its German counterpart reached the lowest level outside a major recession. 

Such bad news created understandable concerns about a global recession appearing. Fortunately, investor confidence has recovered in recent weeks on better business surveys in the US and other countries. 2020 looks to be a year of slow growth, but not recession. 

Which assets, countries and markets are ending 2019 strongest?

One of the interesting phenomena of 2019 was that it was a year when both equity and fixed income markets did well. Both were driven by the same factor, of course, namely lower interest rates and a return to QE purchases, especially by the US and European central banks.

Equities are pulling ahead a little as the year ends, as investors expect some better news on the US-China trade front, while bond markets are marking time as some of the business surveys look to be picking up. Nevertheless, both did much better than real estate or cash.

Europe surprised investors

In terms of countries, the US stock market did rather well, and the European stock market surpassed expectations, as investors looked ahead to better times in 2020. Political uncertainty has held back the UK equity market, Chinese shares have suffered from some poor profits growth, and Japanese equities from the appreciation of the yen, plus concerns about the impact of a major tax increase in the autumn. 

Emerging market equities have had a year of two halves, with worries about trade holding them back before capital began to flow into assets again as investor confidence revived. 

What lessons can investors learn from 2019? 

The first is to pay more attention to economic fundamentals, especially central bank decisions, and less to political news flow. Of course politics do matter, as we know from all the concerns about President Trump’s rhetoric and the potential for a full blown trade war. However, there’s a danger of paying too much attention to the daily announcements and tweets. 

Stepping back and making some strategic calls is important. Are Presidents Trump and Xi ever likely to bring about a global recession deliberately, or will they reach agreement even if it’s late in the day?

Pay attention to central bank policy

2019 has been a year when the importance of monetary policy has been very clear. The benchmark US bond yield started the year about 2.75%, with many commentators expecting flat or perhaps higher interest rates in 2020. As I’ve already mentioned, as recession fears rose, so the US Federal Reserve cut rates, with US bond yields less than 1.5% at their low point in the autumn. This was alongside the rate cuts seen in China, Europe, India and Russia, to name a few of the major economies. 

All in all, monetary policy was relaxed considerably. Going forward, the key issue is whether governments will press ahead with more tax cuts and spending increases to keep the momentum of the recovery afloat. 

Volatility isn’t necessarily the norm

Another lesson to learn from 2019 is that markets don’t always need to be volatile. This was a year when equity markets didn’t see a 10-15% correction. So investors have had a similar experience to the ‘flat’ 2017 rather than the turbulent 2018, which included the horrible drawdown in the final quarter of the year. Bonds and currency markets also saw rather flatter trading than might have been expected at this point in the cycle. 

Insurance is still useful though. Even though a fire didn’t burn down your house in the last year, you should still have insurance against such a risk. That explains why many funds were defensively positioned to some extent in 2019. 


The information in this article should not be regarded as financial advice. Please remember that the value of your investment can go down as well as up and may be worth less than you paid in. Information is based on Aberdeen Standard Investments’ understanding in December 2019.