2019 was a stellar year for equities





US equities had a blockbuster 2019. The tech-heavy Nasdaq Composite Index soared by a whopping 35%.





The tech sector's outperformance drove the returns of the broader S&P 500 Index, which surged over 29%.





2019 was the second-best year for the S&P 500 index in over two decades. The index's return in 2013 barely eclipsed last year's returns.





Stocks saw relatively higher volatility in the middle of the year due to geopolitical uncertainties. However, the indices rose later in the year due to three rate cuts by the Fed and the de-escalation of the US-China trade war.

















History suggests the equity rally could continue in 2020





How has the S&P 500 historically performed after such performances? Over the last 35 years, an annual return of over 15% has seen an average return of 8.75% in the next year.





Hence, history suggests that the S&P 500 could yield positive single-digit return this year. However, there is a caveat. In the past, economic growth was much higher compared to today's levels.





Economic growth is highly intertwined with earnings growth which is the main driver of shares in the long run. Hence, the slowing growth might be an impediment to US equities in 2020.





Additionally, the index is now trading at 24.2x trailing twelve-month earnings, which is the highest level since 2010. Put together high valuations and slower earnings growth could even lead to negative returns on the S&P 500 this year.





However, the dovish Fed, strong labor market and consumption growth, are tailwinds for US stocks in 2020.





US stocks have been consistently outperforming the major markets in the last decade. That might change in 2020.





Emerging markets could perform well in 2020





Investors with slightly higher risk tolerance may consider investing in emerging market stocks and bonds, as capital expenditure is improving.





Meanwhile, improving trade could also prop emerging markets. Also, as the global manufacturing sector shows signs of improvement, emerging market assets could benefit.





According to this article by CNBC , the Chinese manufacturing sector showed signs of improvement in December 2019.





You can have access to emerging market equities through ETFs like iShares MSCI Emerging Market ETF (EEM).





The S&P 500 index has outperformed Emerging market stocks by a large margin in the last five years. The former has returned 9.5% on a compounded annual growth rate (or CAGR) basis. The latter has returned only 2.7% on a CAGR basis. That might just change in 2020.





ETFs like VanEck Vectors Emerging Markets Aggregate Bond ETF (EMAG) and iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) gives you access to emerging market bonds.





The latter invests in US dollar-denominated emerging market bonds, which protect investors from currency risk.





Treasury bonds could add ballast





Treasury bonds have given up some of the gains during 2019. As of January 2, 2020, the 10-year Treasury yield stood at 1.92%, about 50 basis points above its low last year. This makes Treasuries a little more attractive. Remember, bond yields and prices move in opposite directions.





While Treasury yields are still not that attractive, it could still be an important part of a portfolio. Treasuries could add as a ballast, especially if geopolitical risks re-surface.





There are other factors supporting US Treasuries. Firstly, developed market bonds are still yielding much lower than Treasuries, which makes them attractive, compared to other risk-free investments.





Secondly, the supply of Treasury bonds is likely to fall in 2020, which could drive yields lower. Thirdly, uncertainty about the US presidential elections could cause a risk-off scenario, causing yields to fall.





Gold could give positive gains again this year





Meanwhile, gold ended the year on a high note. The yellow metal surged 19% in 2019 and now stands at $1,520 per troy ounce.





Gold has had a low correlation with equities and bonds historically. Any uncertainties regarding growth or other risks could push gold prices higher.





The low-interest-rate environment is conducive for gold. As the Fed remains dovish, interest rates may not rise in 2020. However, a stronger dollar might impede gold's rally.





Tech sector could do well, but beware of IPOs





Technology stocks had a stellar run in 2019, as Facebook, Apple, Microsoft and semiconductor stocks defied gravity and posted hefty gains.





While valuation is stretched in the sector, tech remains investors' favorite as it has been by far the fastest-growing sector in the past decade.





The tech sector could continue to blossom in the 2020s. However, the contribution could come from less-known names from fast-growing sectors like cloud, artificial intelligence and, Internet of things.





Related sectors like semiconductors are likely to de well. Watch out for names like Twilio, Workday, Applied Materials, Xilinx and so on.





Lastly, 2019 was expected to be a year of IPOs. And in a way it was. Uber, Lyft, Pinterest, Beyond Meat, Peloton, Chewy, Fiverr and more. However, most of these companies, while offering a promising story, are deep in the red.





As a result, their returns have flattered to deceive. In 2020, investors would be more wary of such companies. As a result, companies may not go public unless they have a track record of profitability.



