What can investors expect this year? Continued economic expansion, unaltered interest rates and new equity highs, says CIO Larry Adam.
View the full article and additional 2020 financial insights in the Investment Strategy Quarterly publication linked below.
As 2020 begins, investors seek clarity and foresight, especially given the daily dose of unprecedented headlines. We hope the ten themes below provide a sharp, reliable lens to help bring your portfolio decisions into focus.
1. Keeping a close eye on the economy
We forecast that U.S. GDP growth will be moderate at 1.7%, but that the current record-setting economic expansion will continue at least through the presidential election. A resilient labor market, robust consumer spending and a rebound in global growth should be supportive. Although recessions rarely begin in election years, multiple dynamics will cause us to sharpen our pencils when assessing the economy post-election. Our real-time economic indicators suggest a small probability of a recession in 2020, and keeping a close eye on them will be crucial should the economy meaningfully weaken.
2. The Fed’s “corrective surgery”
When the U.S. economic outlook was clouded by trade tensions and slowing global growth, the Federal Reserve (Fed) performed corrective surgery in the form of three “insurance” rate cuts, which recalibrated Fed policy and extended the duration of the current expansion. Knowing that the impact of monetary policy lags and that the Fed has limited ammunition with the fed funds target rate at 1.50-1.75%, we do not anticipate interest rates will be altered in 2020.
3. Tunnel vision on the U.S. presidential election
While Congressional gridlock (Republican Senate, Democratic House) continues to be the likely outcome, uncertainty remains at the top of the ticket. The determination of the Democratic candidate may last well into the summer with an increasing probability of a “brokered convention” – the first for the Democratic Party since 1952 – the longer the process lasts. Historically, positive economic data has led to a favorable outcome for the incumbent. But given the level of division across the country, the election may be determined by two key swing states: Pennsylvania and Wisconsin.