Stock market: Here’s why your 401(k) is celebrating 2019 before ringing in 2020

What a difference a year makes. 

After teetering on the brink of a major downturn in the final months of 2018, the stock market bounced back and thrived in 2019, extending its reign as the longest bull market in history. And if it continues into March 2020, that bull would turn 11 years old. For now, it appears investors have shaken off those late 2018 fears of a looming recession and a trade war with China. And with the Federal Reserve trimming interest rates during the summer and fall, the anxiety about rising borrowing costs has also eased. 

The stock market is back at record highs, and investors who sat on the sidelines during the turbulence of 2018 lost out on hefty gains. If an investor had put $10,000 in an S&P 500 index fund on Jan. 1, 2019, it would have been worth $13,109.19 with dividends this year through Monday, according to S&P Dow Jones Indices.

“Mom-and-pop investors who came into (2019) afraid of the stock market will leave the year thinking they missed out,” says Kevin Roskam, vice president of advisory services at USA Financial. 

On Monday, stocks eased from a recent record-setting rally. The Dow Jones industrial average fell 183 points, or 0.6%, to close at 28,462. The Standard & Poor’s 500 slumped 0.6% to end at 3,221. The technology-heavy Nasdaq Composite lost 0.7% to finish at 8,946. 

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Stocks had a stellar 2019

It was a stellar year for investors. Stocks, gold and crude oil are all on pace to return double-digit gains.

The Dow Jones industrial average has rallied 22% so far in 2019. The Standard & Poor’s 500, meanwhile, has surged 28.5%, on track for its best year since 2013. The broad index has closed at an all-time high 35 times this year and 242 times in the past decade, according to investment adviser firm Compound Capital Advisors. 

The Nasdaq has climbed 35% in 2019 and briefly eclipsed 9,000 for the first time in December, buoyed by iPhone maker Apple and software giant Microsoft. A group of stocks outside of tech also boosted the index, including activewear company Lululemon Athletica and coffee chain Starbucks. 

Some of 2018’s worst performers were among the standouts in 2019. General Electric advanced 46% after slumping 57% in 2018. Homebuilder Lennar rallied 42% after sliding 38% the prior year and semiconductor-tool maker Applied Materials surged 86% after shedding 36% in 2018. 

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Stocks surged out of the gate the first four months of 2019, but growing fears of a potential U.S. recession and trade tensions rattled markets in May and August. Upbeat economic data, however, helped ease worries, driven by a strong jobs market, solid consumer spending and better-than-expected corporate earnings.

Stock market gains in the second half of the year were driven in part by a trio of interest rate cuts from the Federal Reserve. The bond market, meanwhile, stabilized after flashing warning signs at the end of the summer. 

What are market worries for 2020?

The stock market rally is poised to keep humming along, experts say. 

Events in recent weeks, including a limited tariff deal with China, an amended North American trade pact, clarity on Brexit and low-interest rates, are poised to propel stocks higher through the first quarter of 2020, according to analysts at Bank of America. They predict the S&P 500 will hit 3,333 by March 3, a 3.5% rise from Monday’s close.

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To be sure, concerns remain. Volatility could be on the horizon as investors brace for possible shocks from trade talks and a U.S. presidential election. Analysts project single-digit gains for the stock market next year. 

“Investors have to stay out of risky companies to make money in 2020,” says Dave Harden, chief executive officer at Summit Global Investments. “A tide lifts all boats, but the reality is you don’t want a boat with a hole in it.” 

Harden advised clients to buy shares of Microsoft, athletic apparel company Nike and electronic testing equipment maker Teradyne for their strong balance sheets and earnings growth potential. Microsoft and Nike have seen double-digit gains in their stock prices for 2019 and Teradyne has surged more than 100%.

With U.S. and Chinese officials signaling a trade war truce, some economists anticipate a manufacturing rebound and a revival in business investment next year. That could help spur stock gains beyond what was initially thought to be a dismal 2019, they said. 

“One of the most dangerous things you can do is adjust your investment plan based on negative feelings,” Roskam says. “Predictions are often proved wrong.”

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