At the beginning of 2019, stock markets were in turmoil, having suffered one of the biggest routs in history during the previous quarter. In 2020, the landscape is completely different. The economy is strong, unemployment is at a record low, and real wages are increasing. Consumer spending is driving the economy and interest rates are down.
All of this has combined to create confidence in equity markets. There are still questions regarding the likelihood of a continued rally throughout 2020, but, at least for now, the news is positive.
On the first day of trading for the new year, indexes closed with gains. The Dow Jones was particularly impressive, hitting a new all-time high.
Index Performance on The First Day of 2020 Trading
While the Dow Jones was the standout performer on Thursday, there were gains across the board.
- The Dow Jones Industrial Average (DJIA) was up 1.16% at the closing bell.
- The NASDAQ Composite (COMP) was up 1.33%.
- The S&P 500 Index (SPX) was up 0.84%.
Although the NASDAQ and S&P 500 didn’t hit all-time highs, they still reached their best levels since 2013. This is excellent news, especially considering that the economy is now in its longest expansion cycle in history. Although growth has slowed, GDP is still above 2%. Inflation is low, and the Federal Reserve has room to manage interest rates to stimulate growth.
Where is Confidence Coming From?
Economic signals like low unemployment, higher wages, a booming home market, and strong consumer spending are all contributing to the current confidence.
Beyond these key factors, a pending U.S. – China Phase One Trade Deal has investors in good spirits.
President Trump announced on New Year’s Eve that the deal would be signed by January 15. Although it won’t completely resolve the trade tensions with China, it is a step in the right direction.
Full details have not been revealed but it is known that the deal will reduce or remove tariffs on at least $275 billion worth of Chinese goods. It will also outline China’s plans to import more U.S. agricultural and energy products. The deal will benefit consumers and U.S. businesses by reducing the cost of goods and materials. It will also have a direct impact on farmers, especially soy and pork producers, who have been hit hard by two years of worsening trade tensions.
A Great Way to Start the Year
Equity investments are useful for building wealth and creating retirement income. The strength of the stock market will benefit millions of Americans. Even investors who don’t have positions in stocks will enjoy the current conditions, especially those who have long-term savings, bond assets, real estate holdings, and small businesses.
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