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Higher Education Market Trends Summary from Cornerstone

As we enter 2020, the stock market continues to climb, and the Great Recession is more than 10 years in the rear-view mirror. Like the market, the U.S. economy also continues to grow, albeit at a rather tepid pace. Tepid or not, the U.S. economic expansion is well into its tenth year and shows little sign of rolling over in the near future.

While the cracks are there for those who choose to look, the Federal Reserve’s 2019 interest rate reversal and subsequent rate cuts, along with additional quantitative support through the repo market, have been a major factor in boosting equity markets and supporting the economy. Unemployment recently hit a 50-year low of 3.5% and consumer confidence remains strong. The strength of the consumer is buoyed by rising income and strong balance sheets. For the moment, it appears that with the backing of the Fed the consumer will be enough to offset weakness in the manufacturing sector and continued low levels of corporate investment. Recent trade wins (USMCA and China Phase I) by the administration have also boosted stocks and seem to have reassured markets and investors that the U.S. economy will continue to expand in 2020.

By many measures, market valuations are at extreme levels and a short-term pullback is quite likely; in fact, recent news regarding the fast-spreading coronavirus has offset the effect of positive earnings results and sent markets plunging in recent days. A short-term pullback does not a bear market make, and while we view manufacturing weakness, overseas growth concerns, and weak profit margins as threats to strong equity performance, we believe it is likely that U.S. economic growth remains positive and that stocks will continue their ascent in 2020.

While not quite as positive as pre-election years, election years are usually positive with an average gain of 6%. Given the strong performance in the second half of 2019, this bodes well for institutions with fiscal years ending in May or June. Those with May year-ends have the added advantage of an excellent June 2019 return and may see fiscal year returns in the low- to mid-double digits. While a June year-end will not include June 2019 market gains, June fiscal year returns are likely to remain in the mid- to upper-single digits.

We do not believe the impeachment proceedings will have much effect on either the market or the economy. With unemployment low, solid equity markets, and a more positive trade outlook, it is likely that consumer confidence will remain strong in 2020.

With confidence high and asset values strong, we believe the opportunity for asset-based giving remains positive in 2020, and the wealth effect should carry over into enrollment as well. Ultimately, while volatility and election-year drama are likely to remain high, we believe 2020 will be another positive year for the U.S. economy, equity markets, and higher education institutions.


About the Author

Bryan C. Taylor has over 20 years of experience in portfolio management and design. He is a Cornerstone Principal and currently serves as Chief Investment Officer and Chief Executive Officer at Cornerstone Management, where he oversees all operations and is Chairman of the Cornerstone Investment Committee.

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