Risk Managed Strategy Funds


TD Ameritrade: A Look at 2019’s Stock Market Winners and Losers

February 20, 2020


When asked recently which were the biggest stock market winners in 2019, JJ Kinahan, chief market strategist at TD Ameritrade, replied: “All of them.”

It was a joke, of course, but with the S&P 500 Index (SPX) up more than 26% as of December 16 and all of its component industries in the green, it can certainly feel that way.

“Most things did well, and if your stock didn’t do well, you might want to question why you’re holding it,” Kinahan said.

Tech on Top

Among SPX sectors, Technology was the biggest of the stock market winners, rising more than 40% year to date through December 16, just after the United States and China announced an interim trade agreement.

Because technology companies often have exposure to China in terms of sales and supply chains, these stocks have spent much of the year attuned to the ebbs and flows of news on trade negotiations between the world’s two largest economies.

The sector saw some downturns during the year. But, like many other stocks, tech shares gained steam toward the end of 2019 as expectations increased that the two nations would get a deal done.

Chipmakers seemed especially vulnerable to the threat of a protracted trade war. But these stocks hung in there, Kinahan noted. Through December 13, the PHLX Semiconductor Index (SOX) was up more than 55% year to date, hitting a 52-week high on the day the trade deal was announced.

Turning to large-cap consumer and business technology companies, Apple (AAPL) and Microsoft (MSFT) battled for the title of the world’s most valuable company, both with market capitalizations in the $1.2 trillion range. As of mid-December, AAPL was the higher of the two, and 2020 might be a year where their valuations flip-flop depending on quarterly performance.

On a side note, a December IPO of Middle East oil giant Saudi Aramco that put its valuation around $2 trillion means the two U.S. tech titans are battling for second place worldwide. (Keep reading for more about energy markets.)

Housing Hospitable to Investors

The housing industry has also been a strong performer, with the PHLX Housing Sector Index up more than 45% year to date through December 13.

“One that has been among the most surprising is housing,” Kinahan said, citing a strong jobs market and low interest rates. When people are confident in their employment, they’re often more willing to shell out for big purchases such as a home. And when mortgage rates are lower, that can often entice buyers.

“October housing starts were at the highest level since July of 2007, while the months’ supply of homes on the market remains constrained,” the CEO of Toll Brothers (TOL) noted in the company’s earnings release in December, when the homebuilder reported revenue and earnings that beat expectations. “Consumer confidence is healthy, household formations are strong, and interest rates and unemployment remain low.”

According to the Federal Reserve, which lowered interest rates three times in 2019, easier monetary policy this year has helped the housing market. “The full effects of these monetary policy actions will be felt over time, but we believe they are already helping to support consumer and business sentiment and boosting spending in interest-sensitive sectors, such as housing and consumer durable goods,” Fed Chair Jerome Powell said.

Lower mortgage rates have helped spur home buying, but they’re not the only factor. In addition to “ebullient market sentiment,” a strong jobs market is also contributing to homebuyer demand, according to mortgage finance agency Freddie Mac.

The latest jobs report showed that the U.S. economy added 266,000 jobs in November, the highest total for any month since January. Combining the Labor Department’s upward revisions of a combined 41,000 jobs for September and October to the impressive November tally, new jobs growth averaged 180,000 through November.

Energy Unenergetic … Some Brick-and-Mortar Retailers Too

On the other end of the spectrum, as of December 13, Energy has been the SPX’s weakest sector performer of the year. It had gained just over 5% year to date while the next-worst performer, Health Care, was up more than 16%.

U.S. crude oil prices (West Texas Intermediate) spent much of the year between $50 and $60 a barrel, while the international benchmark (North Sea Brent) traded between $55 and $65 for a good portion of 2019, leaving producers like Chevron (CVX) and Exxon Mobil (XOM) with gains that underperformed the broader market.

The oil demand outlook soured as the trade war dragged on, threatening the global economy and its appetite for fuel to power manufacturing, transportation of goods, and business travel. On the supply side, U.S. crude production reached record highs in 2019, contributing to pressure on prices.

It was also a tough year for some retailers, especially Macy’s (M), whose stock gave up nearly half of its value. The company lost ground both to e-commerce and to other brick-and-mortar stores, analysts noted. Kohl’s (KSS) and Gap (GPS) were among the other big retailers that saw their stocks struggle in 2019 as mall traffic slowed down.

2019 stocks winners and losers: MSFT, AAPL, UBER, LYFT, BYND
For illustrative purposes only.

Ride-Hailing Services Among IPOs that Hit the Brakes in 2019

Considering the ebullience in the stock market in 2019, one might expect a robust market for initial public offerings (IPOs). And the year certainly started out that way. But the high-water mark might have been back in the spring, when Beyond Meat (BYND) went public at $25 per share and within three months had rallied all the way to $239. Since then, the BYND chart has been redder than a rare hamburger, with shares plunging to below $50—still above the IPO price, but well off the highs.

In fact, since summer, the IPO market has been more flop than flash. Take ride-hailing, for instance. Through mid-December, Lyft (LYFT) was down 35% from its March IPO, while competitor ride-hailing company Uber (UBER) was down more than 36% from its May debut. Other high-profile IPOs that opened to a lukewarm reception include dental products company SmileDirectClub(SDC), cybersecurity company CrowdStrike (CRWD), and Slack (WORK), the business messaging and collaboration platform.

But perhaps the most unspectacular rollout of the year—and certainly the one grabbing the most headlines—was the failed WeWork IPO. After filing its IPO paperwork in August, the office rental network went from unicorn to dog. The company—whose valuation was initially pegged as high as $47 billion but fell precipitously throughout the summer—announced in late September (a week after co-founder Adam Neumann stepped down as CEO) that it would be postponing its offering indefinitely. A number of analysts questioned its valuation and path to profitability. The company lost $1.9 billion last year.

Kinahan noted that the valuations some companies can get in the private market—where there isn’t always as much pressure for financial results and there can be a longer time frame for profitability—can differ from valuations in the public market.

Newly public companies don’t have the public history of more established publicly traded companies, which helps when conducting research. Once public, the companies’ new shareholders may have different ideas about how the company should be run. Media scrutiny usually increases, oversight and regulations often increase, and new investors can have high expectations for the company’s future growth.

2019 Summary and Look Ahead to 2020

In the final assessment, 2019 was quite a green year. But some sectors were more green than others, with solid earnings and a not-too-hot, not-too-cold Goldilocks economic environment. In a year where the major indices are all gorillas, it can be tough to be a unicorn.

Will the (mostly) positive momentum carry over into 2020? It’s tough to say. On the one hand, a December breakthrough in the long-running tariff saga could mean renewed economic vigor. And because it’s an election year, policy makers, including the Federal Reserve, might be reluctant to rock the boat. But given the current political climate, volatility and caution could rise. With top candidates holding such disparate policy views, the election could usher in a new batch of winners and losers.