The fourth quarter capped the end to a notable year in the markets as all seven of the major asset classes delivered positive returns in 2019. Global capital markets proved resilient against the backdrop of trade tensions, better than feared economic data, Brexit, unrest in Hong Kong, stimulus packages and lower interest rates, among many other developments.
Four of the seven major asset classes advanced over the 3rd quarter, and three showed mild weakness as newswire reports of trade escalation, currency manipulation, interest rate cuts, Brexit turmoil, protests in Hong Kong, and Iranian military action weighed on financial markets. Even with the dizzying headlines, all major asset classes remained in positive territory year-to-date through the end of the quarter.
After a robust first quarter, most major asset classes gained additional ground by the end of June. Lingering apprehensiveness over the tariff situation, soft global growth, Brexit, geopolitical unrest, and the possibility of future interest rate cuts failed to significantly hinder the financial markets.
The 4th quarter proved to be a difficult ending to a challenging year. Volatility, dormant since March, awoke once again with vigor taking investors on a topsy-turvy excursion that included touching all-time stock market highs in October and then plunging into a 19.8% correction in the S&P 500 by December, the second 10% plus decline of the year. There was no shortage of attention-grabbing headlines from midterm elections and tariff escalations, to border walls and another government shutdown, to riots in Paris, chaos over Brexit, and the possibility of a synchronized deceleration of the global economy.
Given the intensity of the newswire over the 3rd quarter, undulations in the global capital markets were relatively subdued. As the shadow of a full blown global trade war persisted, questions swirled around NATO, U.S. intelligence, the Federal Reserve, the European Union and the U.S. Supreme Court. Add in contagion fears pertaining to emerging markets, a strong dollar and rising interest rates, and the quarter had the potential to be more erratic than the final results.