It was a year that began with investors courting a bear market and ended with the biggest gains from stocks since 2013.

Twelve months ago, few could have imagined the S&P 500 delivering a gain of more than 28% in 2019. It was a performance that flirted with the 31% gain of 1997, and one that came very close to topping the 29.6% return of 2013.

The tech-heavy Nasdaq did even better, posting a gain of 35% as money flowed to the tech giants, cementing Apple and Microsoft’s position as trillion-dollar companies. The Dow Jones Industrial Average was up 22%.

It was a year filled with fears that were never realized: a global economic slowdown, disruptive trade wars and potential missteps from Federal Reserve policy. The year also revealed an unforeseen boom in the tech sector that drove the major stock indexes ever higher.

One of the key’s to the market’s 2019 success was starting from a low base.

A steep sell-off in December 2018 left the S&P 500 just 0.2% from officially hitting a bear market, defined as a 20% decline from its closing peak.

The S&P 500 ended 2018 with a loss of more than 6%, closing at 2,485.74 on Dec. 31, 2018. In the final hours of trading in 2019, it’s trading around 3,220.

For perspective, the S&P is finishing 2019 about 10% above 2018′s high of roughly 2,900, which is close to the average return for the S&P 500 over 90 years of 9.8%.

Much of the stock market’s gains in 2019 can be attributed to a dramatic policy shift at the Federal Reserve.

The Fed raised rates four times in 2018, including a December 2018 hike that took its key rate to 2.5 percent.

It was a different story in 2019, when after a change of heart the Fed lowered rates three times. Falling interest rates sent investors on a quest for yield, forcing more money into stocks expected to appreciate, pay dividends or both.

The Fed’s key rate is now back to a range of 1.50% to 1.75%. Additionally, the Fed has said it expects to leave rates unchanged for 2020, giving investors clarity on top of what remain historically low rates.



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