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Transcript of Quarterly Market Perspective - Fidelity Investments ... FIDELITY INVESTMENTS / QUARTERLY MARKET...

  • Quarterly Market Perspective

    Fourth Quarter / 2019

  • FIDELIT Y INVESTMENTS / QUARTERLY MARKET PERSPECTIVE / FOURTH QUARTER 2019 2

    SUMMARY

    The following pages provide greater detail into some of the themes discussed

    in the Quarterly Market Perspective video:

    MARKET SUMMARY:

    Stocks rose strongly despite ongoing concerns about slowing global growth1.

    BUSINESS CYCLE:

    U.S. economy remains in late-cycle expansion driven by resilient consumer spending

    2.

    STAYING INVESTED:

    Economic expansions have had a far greater impact on stocks than recessions4.

    DIVERSIFICATION:

    Diversification can help temper short-term market fluctuations 5.

    INVESTMENT STRATEGY:

    We have gradually reduced risk in well-diversified accounts as the business cycle matured

    3.

    https://www.fidelity.com/managed-accounts/quarterly-market-perspective

  • 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

    Oct

    2019

    Nov

    2019

    Dec

    2019

    Dec

    2018

    Jan

    2019

    Feb

    2019

    Mar

    2019

    Apr

    2019

    May

    2019

    Jun

    2019

    Jul

    2019

    Aug

    2019

    Sep

    2019

    $95,000

    $100,000

    $110,000

    $115,000

    $125,000

    $135,000

    $120,000

    $130,000

    $105,000

    $108,717

    $121,735

    $130,900

    Q4 2019

    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

    $9,000

    $10,000

    $11,000

    $12,000

    $13,000

    $14,000

    Dec

    2018

    Jan

    2019

    Feb

    2019

    Mar

    2019

    Apr

    2019

    May

    2019

    Jun

    2019

    Jul

    2019

    Sep

    2019

    Nov

    2019

    Aug

    2019

    Oct

    2019

    Dec

    2019

    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.

  • FIDELIT Y INVESTMENTS / QUARTERLY MARKET PERSPECTIVE / FOURTH QUARTER 2019 5

    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

    CONTRACTIONEXPANSIONRECOVERY

    + Economic

    Growth –

    • Activity rebounds (GDP, IP, employment, incomes)

    • Credit begins to grow • Profits grow rapidly • Policy still stimulative • Inventories low; sales

    improve

    • Growth peaking • Credit growth strong • Profit growth peaks • Policy neutral • Inventories, sales grow;

    equilibrium reached

    • Growth moderating • Credit tightens • Earnings under pressure • Policy contractionary • Inventories grow; sales

    growth falls

    • Falling activity • Credit dries up • Profits decline • Policy eases • Inventories, sales fall

    Signs of Each Cycle

    Phase

    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

    U.S.

    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

  • FIDELIT Y INVESTMENTS / QUARTERLY MARKET PERSPECTIVE / FOURTH QUARTER 2019 6

    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

    Jan

    1990

    Jan

    1994

    Jan

    1998

    Jan

    2002

    Jan

    2006

    Jan

    2010

    Jan

    2014

    Jan

    2018

    Dec

    2019

    Federal Funds Target RateU.S. Recession

    0%

    2%

    4%

    6%

    8%

    10%

  • FIDELIT Y INVESTMENTS / QUARTERLY MARKET PERSPECTIVE / FOURTH QUARTER 2019 7

    Change in Personal Consumption (Year to Year)U.S. Recession

    –3%

    –2%

    0%

    2%

    4%

    –1%

    1%

    3%

    5%

    20 00

    20 01

    20 02

    20 03

    20 04

    20 05

    20 06

    20 07

    20 08

    20 09

    20 10

    20 11

    20 12

    20 13

    20 14

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    20 18

    20 19

    With a strong jobs mark