As we look forward to the year 2020 and a new decade, some key trends and market signals will be important to watch, including progress on U.S.-China trade discussions, an encouraging outlook from corporate America, and continued strength in consumer spending. We expect the U.S. economy to continue to grow and support stocks, as our year-end 2020 S&P 500 Index fair value target range is 3,200–3,300.
“This year, market technicals look strong but valuations appear stretched, unlike late 2018 when technicals were struggling but fundamentals and valuations looked supportive,” said LPL Financial Chief Investment Strategist John Lynch. “Next year, we project stocks to follow profit growth, rising 5 to 6% from current levels.”
However, we are increasingly mindful of our position in the business cycle. Against this backdrop, questions about the next potential recession and the upcoming U.S. presidential election continue to be top of mind for many investors. While we can’t see into the future, one thing we can predict is that uncertainty in the markets is here to stay. And we are here to help.
Here’s a quick summary of our 2020 forecasts:
DOMESTIC ECONOMY: We are expecting 1.75% U.S. GDP growth in 2020. Our forecast reflects the potential for continued trade uncertainty and weak business investment, but a steady consumer.
GLOBAL ECONOMY: Europe and Japan continue to struggle with trade uncertainty, geopolitical concerns, and sluggish growth. We anticipate more opportunities for growth in emerging markets’ economies, with countries outside China playing a growing role.
INFLATION: Consumer inflation has picked up slightly, and we believe inflation will continue to grow at a healthy but manageable rate.
EMPLOYMENT: U.S. job growth has been steady, although recently it has started to show signs of moderating. Some cooling down would be expected at this point in the economic cycle.
RECESSION: Prolonged trade uncertainty and a highly charged U.S. election season lead us to believe that recession starting in the fourth quarter of 2020 or first quarter of 2021 could be possible, but we don’t think it’s probable.
BONDS: Short-lived and shallow yield curve inversions are not worrisome in our view, and we continue to emphasize a blend of high-quality intermediate bonds in tactically oriented portfolios
STOCKS: We look for solid U.S. equities performance to continue, and we see more potential upside in emerging markets than developed international markets. In the U.S., we continue to prefer large cap stocks (over small cap stocks), cyclical stocks (over value stocks), and a balance of growth and value styles for appropriate strategies.
For more investment insights, check out our Outlook 2020: Bringing Markets Into Focus.
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