December 20, 2019
As we end the last full trading week of the year, let’s review the comparison we’ve been making all-year-long to the 1995 period.
As we’ve discussed many times, in 1994 the Fed was aggressively tightening into a low inflation, slowly recovering economy. That year, the best return on your money was sitting in cash! Fast forward to 2018, and the Fed was aggressively tightening into a low inflation, slowly recovering economy. And again, the best return on your money was sitting in cash (for a whopping 1.5% return).
What happened in ’95? The Fed was forced to do an about-face, and by July they were cutting rates. Same thing this year, to the month, the Fed was forced to stop tightening and start aggressively easing again.
What happened to stocks, and the economy in 1995. Stocks went crazy, up north of 36% (including dividends, up 34% excluding dividends). And within three quarters of the Fed’s first cut back in ’95, the economy was printing above 4% growth.
This time around (2019), stocks have been on a tear higher too.
We looked at this below chart back in March. It’s a side-by-side chart of the stock market from 1995 compared to the 2019 chart (screenshot in March after the Fed started telegraphing a rate cut).
Here’s what that comparison looks like now … with two weeks left in the year, the S&P 500 has indeed tightly tracked that ’95 path …
So, we’ve talked about what happened to the economy in the last 90’s, following the Fed’s pivot. It boomed! What about stocks? Here’s a look at the annual returns on the S&P 500 from 1996-1999. Stocks averaged 26% per year.