Market Review Q4 2019

January 14, 202012 Min Read
Quarterly Market Review

The Positive

U.S. unemployment remains low, wages are rising, the cost of borrowing is falling, and consumers are relatively upbeat about the economic future, all of which signal near-term U.S. growth. (United Income analysis of data from the Federal Reserve Bank of St.Louis (;;;

The Negative

Corporate profits continue to shrink while debt owed by the U.S. federal government was revised up this quarter to a record-breaking $23 trillion, which may stifle mid- to long-term growth. (United Income analysis of data from the Federal Reserve Bank of St.Louis (;

The Big Gambit

President Trump stymied the World Trade Organization, which could boost the U.S. economy by freeing companies from international rules or hurt it by limiting foreign growth opportunities. (The World Trade Organization (WTO) was founded in 1995 to govern trade between 164 countries, including the resolution of disputes between countries or blocks of countries. President Trump has blocked new appointments to the seven person team that resolves disputes between countries, effectively rendering it unworkable.)

Focus Area: A look at prospects for the economy and markets in 2020

Happy New Year everyone. From all of us at United Income, we wish you all the best in 2020.

As we do each January, we want to share our thoughts about what you should expect from the global economy and markets in the coming year. We’re fortunate at United Income to have access to some of the leading U.S.-based economists, which we use to inform our views about how to effectively manage your money - and we love sharing with you what we’re learning.

United States

Let’s start with the outlook for the U.S., where about 73 percent of our client’s investments are concentrated. The short story is that economists generally have become more confident in the near-term prospects for the U.S. economy, which bodes well for the value of your domestic investments that United Income manages. There are a broad range of factors that have contributed to this rising optimism, including:

  1. Cheap Money - The Federal Reserve has recently helped to make it cheaper for consumers and companies to borrow money, which often means more money will be spent in the economy. (United Income analysis of data from the Federal Reserve Bank of St.Louis ( This, in turn, can cause economic growth in the subsequent months and, often, increases in the price of public-market investments. We expect the Federal Reserve is likely to keep the costs of borrowing lower through 2020, which should continue to drive economic growth.
  2. Trade Deals – Recent deals between the U.S., Mexico and Canada, as well as a roll-back in trade barriers between the U.S. and China, have raised hopes that U.S. companies will be able to sell more of their products abroad and import goods at a lower cost. (United Income analysis of data from the Federal Reserve Bank of St.Louis ( This, in turn, can increase the valuations of companies that United Income invests in on your behalf. Importantly, though, while the U.S. has been aggressively fighting for revised trade deals over the past three years, the trade deficit (or how much more the U.S. buys from foreign countries than it sells to them) has actually grown during this time, meaning that there is more work now to make-up for further lost ground.
  3. Bullish Consumers – About two-thirds of the U.S. economy consists of U.S. consumers shopping decisions, which means that economists keep a close eye on how consumers are feeling about the future. Although sentiment was modestly lower in December, consumers are still very optimistic compared to the average sentiment over the past forty years that economists have been tracking this number. (United Income analysis of data from the Federal Reserve Bank of St.Louis (

There are a grab-bag of other indicators that are flashing positive signals, including rising numbers of single-family home sales (which signals economic confidence), increasing industrial production (which signals demand for U.S. produced goods), and rising personal income (which means consumers have more money to spend on goods and services), among numerous other indicators. (United Income analysis of data from the Federal Reserve Bank of St.Louis (;;

This is not to say that all economic signals are positive. Top on that list, the U.S. federal government manages nearly $23 trillion in debt, which is now growing by about $1 trillion every year. (United Income analysis of data from the Federal Reserve Bank of St.Louis ( Even though deficit spending generates economic growth in the near term, this is a bill the future generations will have to pay eventually. There are other worrying signals, too, including geopolitical tensions, slowing population growth, and weakening trade alliances, among other indicators. But, for now, the future is looking pretty good for the U.S. economy in 2020 – although we will be watching very closely as the year progresses.


Next up, let’s have a look at Europe. For these and other international regions, we’re going to take a quick pass through the positives and negatives. But, if you would like to know more about these regions or specific countries, and your investment exposure to either, let your wealth manager know, and we will be more than happy to provide you with more information.

Positives include the fact that investor confidence is picking up (which can cause the price of public companies to increase), there is now more clarity about United Kingdom’s economically critical future role in the European Union trading agreements (which can lead to more investments and economic growth), and consumer sentiment stabilized throughout 2019 (which can lead to more spending and increases in stock market prices). (

Negatives include economic growth that continues to lag the U.S. (which can make investments grow in value relatively more slowly) and lagging population growth (which means there will be fewer additional consumers spending money and driving growth). Additionally, aggressive government efforts to stimulate growth have already been broadly utilized in this region (which means there is less that governments can do to stimulate growth). (United Income analysis of data from the Federal Reserve Bank of St.Louis and World Bank (;

Our verdict is that Europe looks for the time-being like it will continue to grow as a region overall, although perhaps at a slower rate than the U.S.


This region has quite a bit of economic diversity, ranging from the massive China (with 1.4 billion people) to smaller countries like Qatar (with 2.2 million people).

Positives include that China continues to grow at a fast clip (which can increase the value of publicly traded companies in this country) and some of the fastest growing economies are in this region, including Vietnam, which has been growing at an annual rate over 7 percent in recent years (this can increase the value of investments more rapidly than companies focused in slower growing parts of the world). (United Income analysis of data from the Federal Reserve Bank of St.Louis and World Bank;

The negatives are that many areas of Asia, including China and Japan (two of the largest economies) have some of the oldest populations in the world (which can reduce the amount of consumer spend in an economy) and some of the slowest growing populations in the world (which can reduce the number of future, additional consumers). In addition, this region of the world boasts some of the highest consumer debt burdens in the world (which can limit future economic growth). (United Income analysis of data from the International Monetary Fund and World Bank; › media › Files › Publications › wpiea2019258-print-pdf)

Our verdict is that Asia looks like it will continue to grow as a region overall, and selectively grow much faster than the U.S, but faces long-term constraints to growth.

Other Markets

South America, Africa, and the Middle East make up the other key investment markets around the world, in which our clients have a modest amount of money invested. The stock market performance of countries in these regions of the world is as variable as the cultures, including countries like Brazil, where equity markets have nearly tripled over the past three years, to South Africa, where equity markets have shown only modest growth during this same time period. (San Paulo Stock Exchange Index; FTSE/JSE Africa All Share Index.)

Positives include that many countries in these areas have economies that are growing much faster than in the United States, which can create opportunities for relatively larger investment returns like we have seen in Brazil in recent years. (United Income analysis of data from the World Bank This includes countries like Argentina, which are rich with natural resources, but have historically not been able to live-up to their economic potential, in part because of systemic problems with corruption, political stability, and high debt burdens. If these problems can be overcome, there is the potential for large, relative investment returns.

Another positive for investors in these markets is that it includes countries with some of the largest populations in the world, including Brazil, which has the 5th largest population, Pakistan, which has the 6th largest, and Nigeria, which has the 7th largest population. Put together, these countries have nearly twice the number of people than in the United States -- and also feature much younger populations. These represent massive consumer bases that, as they get unlocked with economic development in the years to come, could create substantial opportunities for investors.

Negatives are all of the obvious indicators, including persistent political instability, corruption and high indebtedness, which shows no sign of abating in some of these regions. This, in turn, can create more relative volatility in markets and depress investment returns. There are also major, existential threats to some countries in these markets. The depletion of oil, for instance, accompanied by the transition of major global economies to post-oil energy sources, is already fundamentally challenging Middle Eastern economies that are heavily dependent on oil. This is one reason why Saudi Arabia recently made it possible for the global public to invest in their state-owned oil empire, which will give them additional capital to reinvent their economy.

Similarly, climate change is already challenging economies that are already arid and water deprived. One dramatic example of this in 2019 was Cape Town, South Africa, which became the first major city to run completely dry of water -- depriving 4 million people of life’s most essential resource. While this is unlikely to have been the main culprit behind South Africa’s lack-luster stock market performance, a changing climate has the potential to uniquely challenge economies, residents, and investors in some of these countries.

Put together, we expect more of the same in these regions of the world in 2020, highlighted by eye-popping investment returns in some countries and also, perhaps more broadly, by under-utilized or squandered opportunity for further growth.

Member Results

At United Income, we are always focused on helping our members generate wealth. We always like starting with your financial plan and goals because it helps your wealth manager to create strategies that can generate wealth in multiple ways. In addition to investment returns, we focus on tax savings, increasing the value of your retirement benefits, and keeping costs low because they can generate a more sustainable wealth return for you, our member. (We refer to clients of the United Income Wrap Program as our “customers”. Performance information regarding our customers in this letter does not include information from clients of our Traditional Portfolio Management Services or Traditional Wrap Fee Program.)

Here you will find data highlighting the power of this unified approach.

Investment Returns

9 of the 19 ETFs that we use to build portfolios in member accounts outperformed relevant benchmarks over the trailing 3 months. Our diversified investment approach focuses on multiple strategies that have historically performed well and strategies that can help to minimize your risk. As we expand our investment strategy offering, you will have even more investment options to choose from and we will report on how each strategy has fared.

Q4 2019 Investment Returns

Lower Taxes

For members that joined United Income more than 6 months ago, their average tax savings has been 18 bps or 0.18%; members that joined United Income in the last 6 months, average tax savings has been 1 bps or 0.01%. (Estimated tax savings are measured as 17.5% x (long-term losses realized) + 24% x (short-term losses realized) across all taxable member accounts divided by ending account balances. These realized losses are reflective of trades where cost basis information was available and recorded within United Income. These rates reflect a middle-tier of the tax rates that are applicable to members. Individual member tax rates could be higher or lower than the rates we use in our estimated tax savings calculations. Actual tax savings will depend on the specific circumstances of each member and may differ significantly from amounts calculated. United Income does not represent in any manner that its tax-loss harvesting strategy will result in any particular tax consequence or that specific benefits will be obtained for any individual investor. The tax-loss harvesting service is not intended as tax advice. Members should consult their personal tax advisor as to whether tax-loss harvesting is a suitable strategy, given the member’s particular circumstances. The tax consequences of tax-loss harvesting are complex and uncertain and may be challenged by the IRS or any other tax authority. The internal revenue code, as well as judicial and administrative interpretations of it, are subject to change and could have a material impact on the consequence of United Income’s tax-loss harvesting approach. There is limited authority governing whether an ETF is “substantially identical” to another ETF for the purpose of the wash sale rule. Accordingly, there can be no assurance regarding how the IRS would resolve this question in specific contexts. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies. Past performance does not guarantee future results. ) We are currently forecasting this will add up to an average of $9,600 in extra wealth for each $100,000 invested, or an estimated tax savings of 9.6%, in taxable accounts for the average member over their lifetime. (The average member is defined as 60 years old with life expectancy of 83 years old, based on Social Security’s Actual Life Table; Good things come to those who wait!

Q4 2019 Tax Savings

Lower Fees

On average, members that have disclosed their previous advisor’s fee rate have saved $143 per month, or $1,713 per year, in advisory fees. We are currently forecasting this will add up to an average of $39,402 in extra wealth for the average member over their lifetime. (The average member is defined as 60 years old with life expectancy of 83 years old, based on Social Security’s Actual Life Table; and account balances are estimated to remain flat.) In addition, a 60% stock/40% bond portfolio comprised of the ETFs we use to build member portfolios can save 0.16% per year in expense costs, relative to the average mutual fund. (Morningstar US Fund Fee Study, 2018. Average mutual fund fee calculated based on the asset-weighted mutual fund fee for a portfolio of 34% US Equities, 26% International Equities, and 40% Taxable Bonds, which is the same allocation a United Income member electing 60% equity and 40% fixed income would receive in their portfolio. The fund fee from Morningstar is the average of Active and Passive for each category. ) We are currently forecasting this will add up to $18,400 in extra wealth for each $500,000 invested for the average member over their lifetime. (The average member is defined as 60 years old with life expectancy of 83 years old, based on Social Security’s Actual Life Table;

Q4 2019 Fee Savings

On the Horizon

We'll be releasing our expanded spending and debt functionality in the next few weeks which will set the stage for more innovation throughout the year. Things like a refreshed financial plan summary, expanded financial plan guidance and explanations, and new-to-the-world functionality like financial plan resiliency will make it easier than ever to understand the value United Income delivers. All of this is designed to help us provide more holistic wealth management advice.


As of January 10, 2020
Russell 3000 Index (benchmark)
USMV: iShares Edge MSCI Min Vol USA ETF
QUAL: iShares Edge MSCI USA Quality Factor ETF
VLUE: iShares Edge MSCI USA Value Factor ETF
MTUM: iShares Edge MSCI USA Momentum Factor ETF
XSLV: Invesco S&P Small Cap Low Volatility ETF
FNDA: Schwab Fundamental US Small Company Index ETF
MSCI All Country World ex-USA Index (benchmark)
GSIE: Goldman Sachs ActiveBeta International Equity ETF
EFAV: iShares Edge MSCI Min Vol EAFE ETF
FNDC: Schwab Fundamental International Small Company Index ETF
GEM: Goldman Sachs ActiveBeta Emerging Markets Equity ETF
EEMV: iShares Edge MSCI Min Vol Emerging Markets ETF
DGS: WisdomTree Emerging Markets Small Cap Dividend Fund ETF
Fixed Income
Bloomberg Barclays U.S. Aggregate Index (benchmark)
BND: Vanguard Total Bond Market ETF
FLRN: SPDR Bloomberg Barclays Investment Grade Floating Rate ETF
VGIT: Vanguard Intermediate-Term Treasury ETF
VCIT: Vanguard Intermediate-Term Corporate Bond ETF
VTIP: Vanguard Short-Term Inflation-Protected Securities ETF
BNDX: Vanguard Total International Bond ETF
EMB: iShares J.P. Morgan USD Emerging Markets Bond ETF
All data is rounded to the nearest hundredth of a percent. Data is trailing total returns provided by Morningstar, Inc. Past performance is not indicative of future results.