By Chris Matthews, William Watts and Steffen Gosenheimer
NEW YORK (Dow Jones) – The U.S. stock market left on New Year’s Eve with price gains from 2019, which was the most successful in six years for the S&P 500 and Nasdaq composites. The Dow Jones index only performed as well as it did last in 2017, but the annual balance of 22.3 percent leaves nothing to be desired from a stock exchange perspective.
The Dow gained 0.3 percent on the last day of the year and entered the new decade with 28,534 points, 170 points below its record high of December 27th. The S & P-500 and the Nasdaq composite rose in the same order of magnitude and are therefore only just below the recent record highs. There were 1,033 (1,733) losers in 1,892 (Monday: 1,200) course winners, while 102 (87) titles closed unchanged.
According to traders, the US President made for a good mood Donald Trump announced that it would sign the so-called phase 1 deal with China in the White House on January 15 to curb the trade dispute.
Among the individual stocks, Nvidia benefited from a buy recommendation and rose by 1.3 percent. McDermott International suffered from a report by the Wall Street Journal that the energy service provider should hold talks with creditors about filing for bankruptcy. The share price dropped by 9.8 percent.
Boeing dropped 0.8 percent after the aircraft manufacturer reached a compensation agreement with Turkish Airlines in connection with the continuing flight ban on the 737 MAX aircraft.
Although the US stock market year, like 2018, was largely shaped by the never-ending trade dispute between the USA and China, it was much more encouraging from an investor’s perspective. The impressive annual increase of the Dow was even topped by the S & P-500 with an increase of almost 29 percent and by the Nasdaq composite with a good 35 percent. In 2018, the overall balance had gone down – only for the second time since the Lehman bankruptcy in 2018. The Dow had lost almost 6 percent in 2018.
Even if the bottom line was clearly up in 2019 – depending on whether the news regarding the ongoing negotiations to settle the conflict was positive or negative or whether there were new threats or, on the contrary, more conciliatory tones, share prices were always volatile in the short term to. The US President played a significant part in this with his tweets, which sometimes pointed in one direction and sometimes in the other.
At the end of the year, however, the confident tones increased, which is why, after a temporary sideways trend, the major indices picked up again significantly from October.
Low interest rates help
The US Federal Reserve provided tailwind with its three interest rate cuts in 2019. The first was only in July, but earlier in the year it had already become apparent that after a total of nine interest rate hikes since 2015, the interest rate trend has been falling again. The background to this was the negative impetus for the global economy from the US-China trade dispute. The US central bankers felt called upon by them, which is why, as a precautionary measure, they cut interest rates to support the economy.
The US ten-year return was recently at just under 1.91 percent and had been the sharpest decline since 2014 in the past twelve months. At the start of the year it was around 2.67 percent, and then in summer’s low for the summer was sometimes below 1.50 percent.
2019 was a successful year for all sectors of the S&P 500 index. The best-performing industries came from the technology sector. The S&P 500 sub-index Technology posted the strongest growth with an increase of 48 percent. Behind them came the indices of the telecom & IT stocks and the software stocks, which also rose very strongly by over 40 percent each. The strong price gains of technology stocks are somewhat put into perspective, however, if one considers that they had by far been the worst in the last two months of 2018.
Rising interest rates help bank stocks
The banks ended in fifth place with an increase. In the second half of the year, they benefited from the fact that the yield level on the bond market rose noticeably from a low of 1.46 percent at the beginning of September to 1.91 percent recently. Generally speaking, higher interest rates make bank lending more lucrative.
The background to the rise in interest rates was the looming temporary end to the Federal Reserve’s rate cut cycle. Although it cut the key interest rate again in October, it had already become apparent in advance that this third one rate cut in view of the brightening economic outlook, this will be the last one for the time being. The latter also contributed to increased signals that the US-China trade dispute should not escalate completely.
In the end, the energy sub-index ended up with an increase of 7.6 percent. It developed in parallel with the prices on the oil market. Since then, the price of the US variety WTI has risen by around 10 percent after a jump at the turn of the year. That was the strongest increase in three years.
Dow highlights Apple and Microsoft – Boeing with 737 MAX flaw
The best stock in the Dow Jones index was Apple. It jumped up a good 85 percent after dropping 6 percent in 2018. The stock benefited, among other things, from the fact that the technology giant is getting stronger in the service business, so the dependency on the still booming iPhone business is becoming less. Apple has meanwhile become one of the streaming providers such as Netflix and Disney + with its Apple + offering. The second best share in the Dow was Microsoft with a plus of 54 percent. The prices of the two technology heavyweights have recently been practically at record highs.
Most of the conversation among the Dow companies caused Boeing because of the ban on flying the 737 MAX aircraft. In autumn 2018, one of the Indonesian Lion Air machines crashed, and a few months later a machine in Ethiopia. Since then, despite the ban on flights, the group has manufactured around 40 aircraft a month in the hope that the problems can be quickly remedied by software updates and pilot training. However, this turned out to be deceptive, instead inconsistencies in the approval process became apparent.
Because the release of the Boeing 737 Max is delayed further, the group has stopped production for the time being. There are currently around 400 machines in stock and awaiting delivery. The damage to Boeing is now in the $ 10 billion range.
The fact that the share still has a minimally positive annual balance of 2 percent is due to the fact that it was already under pressure in the weeks after the crashes in 2018. Compared to the high of the year at the end of February, when the stock reached $ 432 with the prospect of a quick fix at the time, the minus was more than 24 percent.
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(END) Dow Jones Newswires
January 01, 2020 04:10 ET (09:10 GMT)