It seems unrealistic to assume that the market will perform that strongly again: one element of these strong returns was simply the fact that shares were rebounding from the fierce sell-off of 2018.
But another year of loose monetary policy should make it more likely that US equities are supported, and continue to rise in price.
Other factors should be taken into account.
As discussed, the trade war remains unpredictable and could quickly escalate.
There are also some concerns that US consumption – a large element of the economy - will falter. This could have a knock-on effect for equities.
Lyxor’s team, for one, believes that consumption should hold up, noting that “though wage inflation may not accelerate much above the current 3.5 per cent level, households should continue to enjoy solid labour income growth, which is a pillar of consumption growth alongside consumer confidence”.
For intermediaries and their clients, this could equate to a regime where US equities simply continue to rise.
But the fact that loose monetary policy has helped stocks make such large gains means some winning sectors may simply appear too expensive to warrant much exposure.
Lyxor’s analysts warn that utilities are “richly valued” and near record high prices.
Because they often act as bond proxies, or reliable stocks that yield more than fixed income, utilities could also struggle if bond yields rise, making them look less attractive to investors.
Consumer discretionary stocks are also viewed as expensive, while areas such as consumer staples have been identified as more attractive on price.
One other implication of US monetary policy for clients and their portfolios relates to currencies.
The US dollar
The US dollar, for various reasons, has remained strong versus other currencies in recent years.
This has several knock-on effects.
In the UK, where sterling has already been weakened due to Brexit-induced uncertainty, the dividends and earnings received from America are flattered by the exchange rate.
This can bolster returns for some UK equity income funds, for example.
A weaker dollar – and strengthening sterling – could remove that advantage but bolster gains from domestic exposure, meaning UK equities are one area that may have more room for good returns than the US market currently does.
A similar dynamic applies for emerging markets.
A strong dollar can hurt emerging market economies for various reasons: if the debt emerging market companies and governments hold is in dollars, this can increase their burden, for example.
By contrast, if looser monetary policy weakens the dollar this could be a boost to emerging market equities and debt – something intermediaries should bear in mind for portfolios.
