The 2019 market gains for large cap indices were driven mostly by higher valuations or multiple expansion, while expected earnings grew just 1%. The multiple expansion was largely the result of two policy shifts. The first from Fed Chairman Powell, the second from President Trump. One way of looking at the shift in monetary policy is to track the forward rate guidance provided by the FOMC. In December 2017, the median of the projections of FOMC participants pointed to three ¼ point interest rate increases in 2018. A year later, after four rate increases, the Fed Funds rate was 2.5% and projections indicated two more hikes would occur in 2019. That proved to be the high watermark for rates as they were lowered three times during 2019, as the “crosscurrents”¹ that Chairman Powell pointed to in his December 2018 press conference apparently became too strong for the Fed’s liking. Today, the published projections from the December 2019 FOMC meeting call for what sounds like a hopeful ¼ point increase in 2020. Powell’s tone has shifted as he said that he would like to see a significant and persistent move up in inflation before raising rates, and later adding that, “you’ve had quite a significant move in the direction of higher accommodation.”²

Read the full Large Cap Value Commentary here: January 2020 Commentary Large Cap Value