2020 Sector Outlook: The Macroeconomic Backdrop

Everyone has their methods for mining valuable insights from the vast amount of data and news available in this age of information. At Loomis Sayles, leveraging our sector teams is one way we do this. These teams, composed of traders, analysts, strategists, and portfolio managers, are immersed in their respective sectors every day, watching markets, discussing trends, and debating potential investment opportunities. These experts cut through the noise and provide valuable, actionable insights to our investment teams.

To kick off 2020, we are providing our readers with a glimpse into this process with a new series featuring brief outlooks from our sector teams. But first, I’ll set the stage with my outlook for the broad macroeconomic backdrop.

A steady Fed and lower uncertainty could support risk sentiment

I think the macroeconomic environment will remain fairly benign in 2020, with downside risks and recession fears diminished. Lower uncertainty surrounding two major areas of market focus in 2019—US-China trade and Brexit—helped bolster investor sentiment for 2020.

The late-cycle environment will likely persist, with few signs of ending soon. We will be keenly focused on profit strength, which we believe will be a key determinant of further cycle extension.

The Federal Reserve is unlikely to adjust rates in the next 12 months. Chairman Powell has signaled a rate cut is unlikely in the near term and the bar for a rate hike is very high (requiring unexpected inflation acceleration).

If corporate profits hold up and rates stay relatively low, 2020 could be another year of positive risk asset performance. Emerging market credit and US equities look set to lead returns.