2020 outlook: An optimistic view of capital markets

Welcome to December – just one more month until a new year begins (and, depending on how you do the math, a new decade as well). Naturally, this is the time when market-watchers issue their forecasts for what may lie ahead, and my team is no exception. Simply put, we expect continued monetary policy accommodation with little fiscal stimulus. Therefore, we are more optimistic about capital markets than we are about the overall economy, and we favor risk assets over non-risk assets for 2020. Below, I highlight some of the reasons why. An in-depth analysis is available here.

Global outlook: Central banks expected to drive growth

As we look ahead to 2020, it’s clear that central banks are still shouldering the burden for stimulating the economy via monetary policy. That should bode well for 2020, in our view. However, we believe such monetary easing should be more positively impactful for asset prices than the overall economy. Economic uncertainty is likely to continue to depress capital spending, in our view, and we must watch vigilantly to ensure it doesn’t spill over into diminished hiring plans.

  • Bottom line: We expect overall economic growth of about 3% for the globe.

US outlook: We expect accelerated growth as next year progresses

Our view is that growth bottoms early in the year at approximately 1%, and then accelerates as the year progresses. Cycles tend to end with policy mistakes, and the risks have risen. However, it is our base case that the policy mix will continue to get modestly better. We believe the Federal Reserve and central banks globally will deliver more accommodation if necessary to support the economic expansion. And so we do not expect a recession in 2020.

  • Bottom line: We expect an environment of modest growth of approximately 2% for the US in 2020, which exceeds consensus expectations.

Canada outlook: A chance of rising rates doesn’t dampen our growth expectations

We believe the Bank of Canada could be one of the few central banks to raise rates in 2020 (most likely in the second half). However, we do not believe this will create headwinds — the Canadian economy and stock market tend to do best in an environment of quickening global growth, rising commodity prices, and an appreciating Canadian dollar, which would be consistent with interest rate hikes.

  • Bottom line: We expect Canadian gross domestic product (GDP) growth to exceed expectations at approximately 2% for 2020.