Do you have the feeling of toasting the coming of year 2019 seems to have happened just yesterday? I do. Seems to me that writing an article forecasting year 2019 is not a distant memory. Yet, right now I am writing a blog looking back at 2019 and looking forward to 2020. Time just flies by and life must go on.
Looking back at 2019, I think two words stand out and aptly summarize the year: uncertainty and change. Beginning 2019 we have two biggest uncertainties: trade war between China and the US, and Brexit drama. These two biggest uncertainties hung over our heads until the end of 2019. Last Friday, it is reported that the US and China have agreed on a so-called Phase One trade deal while Boris Johnson’s Conservative Party won big and he will return to Downing Street with a big majority. In 2019 we see changes going on in world’s supply chains, and investment trends such as the ESG (environmental, social and corporate governance) movement in the world of investing. Amid these changes and uncertainties there is one shining spot that stands out: the return of US equity. For example, the iShares Core S&P Total Us Stock Market ETF returned 28.15% so far this year thanks to US corporate tax cut, good jobs market, resilient consumer spending and the Fed rate cut.
So, what is year 2020 going to be like in economic, market and business perspectives? The advisor at NorStar Financial thinks the themes of “uncertainty” and “change” will continue into 2020. For one thing, 2020 will be US presidential election year. This is big enough of an uncertainty given the stark contrast of economic policies between the President and likely Democrat presidential nominees. In addition, a recently published World Economic Outlook by IMF sees coming economic weakness worldwide. However, based on a survey of financial advisors by Financial Planning Association (FPA), majority of advisors don’t see a recession in the US in 2020, but rather an economic slowdown. Fortune magazine predicted in its December issue that US GDP growth will be hovering around 2% throughout 2020. During 2019, the Fed has cut its benchmark rate three times with its rate now in a range of 1.5% to 1.75%. Will the Fed cut rate again in 2020? Right now, it signals that it has no plan to do so in 2020. But Fed Chairman Powell also said that Fed will do whatever it is needed to support the US economy. With Fed rate once again under 2%, investors who seek current income will have to be creative in 2020 for higher yields. On trade, US and China will probably not further escalate during 2020, but the damages resulted from the trade war since 2018 have already been done to the world economy. And the negative effects will continue to be felt in 2020 in areas such as commodity prices and energy sector. All these uncertainties have already affected business sentiment and business investments. Given this overall macroeconomic backdrop, investors may see single digit returns in stock market in general. Despite the impressive run of the so-called “passive investing” since the last Financial Crisis, where investors just buy index funds to catch market return, individual stock picking maybe come back in favor in 2020. However, individuals need to assess their own financial situations or talk to their financial advisors to develop best investment strategies based on their unique situations. At the same time, another “trade war” among brokerage houses to race to zero commission fee for online trading, the merger of Charles Schwab and TD Ameritrade, and the emerging trend of ESG investment will continue to be changing and shaping the world of investing. In the meantime, the undergoing disruption and change happening to worldwide supply chain will continue into 2020. Artificial Intelligence will pick up momentum, and so will 5G. It is no business as usual anymore.
Thanks for reading and have a great holiday!