M&G | The year 2019 is going to close with strong advances of most of the world indexes, above 20% in Europe and the United States. The market behavior has been symmetrical to that of 2018 as can be seen in the following graph.
The sharp fall of the last months of 2018 recovered fully in the first months of this year, once the Federal Reserve announced the end of the rate hikes reassuring investors about the risk of a recession. If we ignore that sudden movement of fall and recovery, it can be said that the European stock exchanges have spent two years in a lateral process, which has been parallel to the deceleration phase of the economy.
In this sense, the most relevant thing that has happened this year has not been the excellent returns of the indices, since after all they have been a recovery of last year’s losses. The key, from a technical point of view, has been the final movement of overcoming key resistance for the structure of the indices and that would point to the continuity of the upward movement in the coming months. This movement has been very widespread (there is always some part of the weaker or lagging market), which reinforces the confidence that it is a reliable break.
The overall market background remains relatively pessimistic. Of course nothing to do with the optimism about the economy that usually frames the large market roofs. The large accumulated rise this year may involve some fear that there is little room for travel for next year. However, if we look at the market with more perspective, we must bear in mind that European indexes had been at least since 2015 without achieving any net progress. Statistically, the years with increases above 20% have been followed more times for another year of increases than decreases. On average the progress in the 13 years after a rise of more than 20% has been 8.60%. It would not be a bad forecast for 2020.