The Past, Future and Present

     First. I look back at 2019 and how the financial markets treated me. It was a very good year to be a stock investor. The S&P index has returned over 28% year to date. Information Technology has led the way with a whooping 47% return. Communication Services was also unusually strong at 31% as this is usually a boring sector with a rich dividend. The laggard in the group was Energy with only a 10% gain on the year. What created such a great environment for stocks? In two words: Interest Rates. I remember exactly one year ago today, on Christmas Eve, the market reacted badly to the 25 basis point increase in the fed funds rates by sending the averages sharply lower. December of 2018 was a correction that literally was a Christmas gift to anyone who had the nerve to buy at a discount. Investors who picked-up these bargains were richly rewarded throughout 2019. During the past year, rates have been cut 3 times, creating a perfect scenario for stock gains. Looking forward to 2020, the Fed has indicated that interest rates should remain stable, another positive for stocks. What could derail this rally? First, trade tensions escalate, secondly, and unexpected increase in inflation and interest rates, third, an unexpected outcome in the presidential election or impeachment proceedings. I recently attended a convention for Credit Union volunteers and was taught how to predict the future. It involves looking at what is trending at the present and assuming that the trend will continue. Recent performance has worked for horse racing, so why not stocks? I predict that energy stocks which have suffered for a very long time will be strong in the new year. Even though tech companies have gotten a little ahead of themselves, I think they will also do well. I expect stable interest rates at least through the first half of the year so Home Builders should do well also. Let's not forget that this economic expansion is in its eleventh year, a record. What often works late in a bull market is small cap stocks. The best way to invest in small caps is through a managed mutual fund that has a good track record and low fees. Finally, its time to do a little year-end tax planning by looking for losing stocks that could offset gainers sold during the year.