Quarterly Market Perspective - Fidelity Investments ... FIDELITY INVESTMENTS / QUARTERLY MARKET...
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Quarterly Market Perspective
Fourth Quarter / 2019
FIDELIT Y INVESTMENTS / QUARTERLY MARKET PERSPECTIVE / FOURTH QUARTER 2019 2
The following pages provide greater detail into some of the themes discussed
in the Quarterly Market Perspective video:
Stocks rose strongly despite ongoing concerns about slowing global growth1.
U.S. economy remains in late-cycle expansion driven by resilient consumer spending
Economic expansions have had a far greater impact on stocks than recessions4.
Diversification can help temper short-term market fluctuations 5.
We have gradually reduced risk in well-diversified accounts as the business cycle matured
FIDELIT Y INVESTMENTS / QUARTERLY MARKET PERSPECTIVE / FOURTH QUARTER 2019 3
Stocks and bonds rose strongly for the year despite ongoing concerns about economic growth and trade uncertainty A key driver for stock and bond returns in 2019 was a shift in U.S. Federal Reserve Bank policy that included three interest rate cuts.
• For the markets, this policy reversal was a positive because lower rates can provide a boost to borrowing and spending, potentially extending U.S. economic expansion.
• Within bonds, both U.S. Treasuries and corporate bonds performed well, as interest rates fell and fears of a more significant slowdown receded.
• Following a down 2018, both U.S. and international stocks posted strong returns. While the U.S. outperformed for the year, international stock returns accelerated in the final months of 2019.
This chart illustrates the performance of a hypothetical $100,000 investment made in the indexes noted. Index returns include reinvestment of capital gains and dividends, if any, but do not reflect any fees or expenses. This chart is not intended to imply any future performance of the investment product. Past performance is no guarantee of future results. It is not possible to invest directly in an index. All indexes are unmanaged. Please see Important Information for index definitions. Source: Fidelity Investments, as of 12/31/2019. U.S. Stocks — Dow Jones U.S. Total Stock Market Index; International Stocks — MSCI All Country World Index ex USA (Net MA); Bonds — Bloomberg Barclays US Aggregate Bond Index.
1. MARKET SUMMARY
International Stocks BondsU.S. Stocks
Hypothetical growth of $100,000 U.S. stocks gained 31%, while international stocks returned 22%
FIDELIT Y INVESTMENTS / QUARTERLY MARKET PERSPECTIVE / FOURTH QUARTER 2019 4
Russell 1000 Value Index MSCI USA Minimum VolatilityRussell 1000 Growth Index
While U.S. growth stocks led, investors began to reward value stocks into year-end
Past performance is no guarantee of future results. Source: Fidelity Investments and Bloomberg Finance LP as of 12/31/2019.
1. MARKET SUMMARY
Improving investor sentiment was key driver for this shift Growth continued to lead, but value made strong gains near year-endU.S. stocks were positive in 2019,
but certain investment styles began to diverge as investor sentiment improved.
• Growth stocks continued their multi-year outperformance given investor preference for companies with higher growth potential, a typical trait of late cycle.
• While value stocks lagged, they outpaced growth stocks in the final four months of the year as investors became more optimistic about economic conditions.
• Conversely, since late August, conservative segments of the market, like minimum volatility stocks, slowed. These stocks had performed exceedingly well earlier in 2019, as investors sought more defensive stocks when the growth outlook was less clear.
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The U.S. economy remains firmly in late-cycle expansion
For more than a year, the U.S. economy has been in late-cycle expansion, but recession is no closer today than it was in late 2018.
• Strong consumer spending continues to drive the U.S. economy, helped by low unemployment and solid wage growth.
• Higher wages, weaker manufacturing activity, and slowing global growth have weighed on corporate profit margins.
• However, interest rates remained low and the U.S. Federal Reserve provided more pro-growth support by cutting interest rates three times in 2019.
Please see Important Information for the Business Cycle Framework methodology. Note: This is a hypothetical illustration of a typical business cycle. There is not always a chronological progression in this order, and there have been cycles when the economy has skipped a phase or retraced an earlier one. Source: Fidelity Investments (AART), as of December 2019.
2. BUSINESS CYCLE
Early Mid Late Recession
• Activity rebounds (GDP, IP, employment, incomes)
• Credit begins to grow • Profits grow rapidly • Policy still stimulative • Inventories low; sales
• Growth peaking • Credit growth strong • Profit growth peaks • Policy neutral • Inventories, sales grow;
• Growth moderating • Credit tightens • Earnings under pressure • Policy contractionary • Inventories grow; sales
• Falling activity • Credit dries up • Profits decline • Policy eases • Inventories, sales fall
Signs of Each Cycle
Source: Bloomberg Finance L.P., Fidelity Investments (AART), as of 6/30/19.
U.S. remains in the more mature phase of mid-cycle growth
Four phases of an economy’s business cycle
View supported by:
• Healthy employment
• Stable consumer spending
• Slowing corporate profits
• Weak manufacturing activity
The long U.S. economic expansion persisted as employment and consumption remained resilient
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U.S. Federal Reserve cut rates three times to help extend the current economic expansion Given a slowing economy and benign inflation, the Federal Reserve (Fed) cut interest rates three times in 2019 to help extend the current economic expansion.
• When economic conditions deteriorate, or when inflation is muted, the Fed has historically cut interest rates in an attempt to restore growth.
• Over the last 30 years, the Fed has seen mixed results after rate cuts. The economy further weakened in 1991, 2001, and 2008, but reaccelerated in 1995 and 1998.
• It remains to be seen if the 2019 interest rate cuts will help extend the current economic expansion, but lower rates could provide a boost to borrowing and spending.
2. BUSINESS CYCLE
Shading represents U.S. economic recession as defined by the National Bureau of Economic Research (NBER). Federal Funds Target Rate refers to the upper bound. The federal funds rate is the short-term interest rate targeted by the Federal Reserve’s Federal Open Market Committee (FOMC) as part of its monetary policy. In December 2008, the target rate was replaced by a target range. The above visual highlights the upper bound of that range. Source: Bloomberg Finance L.P., as of 12/31/2019.
Interest rate cuts in 1995 and 1998 helped extend the U.S. economic expansion
Federal Funds Target RateU.S. Recession
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Change in Personal Consumption (Year to Year)U.S. Recession
With a strong jobs mark