For 2020, Buy Early

We will miss 2019. While 2018’s odd confluence of a weakening economy, rising trade frictions and monetary tightening led to losses in virtually every asset class, this year has been the exact opposite. Monetary stimulus, economic stabilization and an erratic but ultimately successful reduction in geopolitical risk produced a stellar year for risky assets (see Chart 1).

Next year is unlikely to be a repeat, but I don’t expect a return to the challenges of 2018. Looking ahead to 2020, here are three predictions (hopes?) for the new year.

No recession, but also no boom.

While recession fears were overblown in late 2018, there were legitimate issues facing the global economy. Today, two of the biggest have been resolved: monetary policy has pivoted from tightening to easing and the U.S. and China have struck a temporary “trade truce”. Both factors, along with a solid U.S. consumer and measured Chinese stimulus, should keep the global economy growing. That said, we’re not on the cusp of a 1990s style economic nirvana. The same secular headwinds that have inhibited growth, particularly an aging society, do not go away simply because the calendar turns. Demographic changes will still constrain the rate of growth in the labor force, keeping U.S. GDP at around 2%.