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Quarterly Market Review

December 2019

Quarterly Market Review

T. Rowe Price

U.S. Stock Market

Stocks recorded solid gains in the fourth quarter, helping the large‑cap S&P 500 Index notch its best yearly gain since 2013—albeit one measured off a low base established by steep declines the previous December. The gains helped lift most of the major indexes into record territory, while the small‑cap Russell 2000 Index remained roughly 4% below its August 2018 peak. Technology shares performed best within the S&P 500 Index, helped by strong gains in Apple and Microsoft, which, together, ended the year accounting for nearly 40% of the sector’s market capitalization. Health care shares were also especially strong after underperforming earlier in the year. The small real estate sector declined slightly and was the sole segment to record a loss on a total return (including dividends) basis.

Investors Celebrate “Phase One” Trade Deal With China

The U.S.‑China trade dispute loomed large over sentiment through most of the quarter. Shares rallied sharply early in the period, as reports emerged that the two sides were nearing a partial trade deal that would at least avert the imposition of new tariffs, as President Donald Trump had threatened in the summer. Just before markets closed on October 11, the president announced that the two sides had agreed to the outlines of a “phase one” deal in which the U.S. would suspend planned tariff increases in return for increased purchases of U.S. agricultural goods by China, along with unspecified provisions regarding protection of intellectual property and access for financial services firms.

Markets fluctuated in the middle of the quarter, as particulars of what was included in the deal and when it would be signed failed to emerge. On December 13, however, the Chinese announced that the two sides had settled on a plan to lower tariffs. The White House then confirmed that the U.S. would lower the tariff rate on about USD 120 billion in Chinese goods from 15% to 7.5% while canceling the upcoming tariffs on nearly USD 160 billion in largely consumer‑related imports from China. On December 31, President Trump announced in a tweet that the trade pact would be signed at the White House on January 15 and that he would later travel to China for negotiations of a “phase two” deal. T. Rowe Price traders noted that congressional approval of the U.S.‑Mexico‑Canada (USMCA) trade agreement and the diminished threat of new auto tariffs also seemed to bolster sentiment as the quarter ended.

Total Returns
  4Q 2019 Year-to-Date

Dow Jones Industrial Average



S&P 500 Index



Nasdaq Composite Index



S&P MidCap 400 Index



Russell 2000 Index



Past performance is not a reliable indicator of future performance.
Note: Returns are for the periods ended December 31, 2019. The returns include dividends based on data compiled by T. Rowe Price, except for the Nasdaq Composite, whose return is principal only.
Sources: Standard & Poor’s, LSE Group. See Additional Disclosures.

Consumer Stays Resilient as Manufacturing Sector Slows

Fading recession fears also seemed to drive markets higher. Stocks had their best day of the quarter on October 4, after the Labor Department reported that employers had continued to add jobs at a decent pace (136,000) in September while revising previous months’ payroll gains higher. Payroll gains also surprised on the upside over the following two months. Meanwhile, the unemployment rate touched 3.5% in both September and November, the lowest level in five decades. The tight labor market resulted in decent income gains, and investors looked forward to a healthy holiday shopping season. Housing market signals were also generally positive, and the Commerce Department reported in December that permits for new construction surged to their highest level in more than 12 years.

The manufacturing sector remained the weak spot in the aging economic expansion. Stocks fell sharply early in the quarter after the Institute for Supply Management reported that its gauge of U.S. manufacturing activity had fallen further into contraction territory and reached its lowest level since the Great Recession of 2008–2009. Durable goods orders fell unexpectedly in November, and the decline of regional factory indexes into or near contraction territory added to signs of persistent weakness in the sector.

Corporate Earnings Continue to Decline, but Investors Hope for 2020 Rebound

Third‑quarter earnings reports may have given another modest lift to stocks. Although overall earnings for the S&P 500 declined marginally for the third consecutive quarter, according to FactSet, slightly more companies than usual topped analysts’ consensus estimates. While rising wage pressures and input costs seemed to be hurting profit margins, analysts polled by FactSet continued to expect a return to earnings growth in 2020.

In what may be a positive sign for the market and the efficient allocation of capital, T. Rowe Price traders noted that investors seemed to grow more inclined to reward companies for surpassing earnings or revenue estimates and lifting their guidance while punishing those that failed to deliver on either count. Due in part to the growth of index funds and other passive strategies, money has tended to flow in and out of equities as an overall asset class in recent years, causing stock prices to move in tandem.

High Possibility of Extreme Outcomes in 2020

At a recent press briefing in New York, John Linehan, an equity CIO at T. Rowe Price, stated that the long duration of the current bull market is not a particular concern. He observed that, rather than dying of old age, bull markets often succumb to one of four ills: an economic downturn, regulatory or policy uncertainty, Federal Reserve policy errors, or valuation excess. On balance, current signals suggest slightly positive returns for the market in 2020, with a very accommodative Federal Reserve likely to offset significant volatility caused by the regulatory and political environment. Nevertheless, the possibility of extreme outcomes in either a negative or positive direction appears higher than in recent years.

Additional Disclosures
London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2020. FTSE Russell is a trading name of certain of the LSE Group companies. “Russell®” is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

S&P Indices are products of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”), and have been licensed for use by T. Rowe Price. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by T. Rowe Price. T. Rowe Price is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P Indices.

Copyright 2020 FactSet. All Rights Reserved.

Important Information

This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request. It is not intended for distribution to retail investors in any jurisdiction.

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