2020 kicks off an election campaign cycle that will determine the trajectory of the Trump policy agenda and its associated impact on the market. The U.S. economy is expected to expand moderately in 2020.
Charting the Course for the 2020 Elections
While the race for the presidency will dominate the headlines, the ultimate market and economic impact will be decided based upon the outcomes of the majorities in the House and Senate. The ability for any candidate to enact his or her agenda, especially through the confirmations of key cabinet and regulatory posts, runs through the Senate. Thirty-five total Senate seats are up for grabs in 2020. Republicans currently hold a 53-47 majority, which sets up Democrats for an uphill battle to make significant gains. Of the 35 races, six are considered ‘competitive.’ At this time, the most likely scenario for the Senate is a continued Republican majority.
2020 Economic Outlook
Many of the 2019 uncertainties seem likely to continue into the first half of the year, but the downside risks to the growth outlook appears to be less worrisome. Trade policy uncertainty and slower global growth, the two negative factors most widely cited across manufacturing industries, may continue to some extent. In contrast to consumer confidence, which has remained elevated, business sentiment weakened in 2019. Fed policy is expected to remain on hold until a material change in economic conditions occurs.
2020 International Outlook
While any trade angst is unlikely to be a helpful backdrop either in the U.S. or abroad, the prospects of positive progress remains encouraging. The Chinese economy will continue to grow impressively from an international perspective as the prowess of the local consumer continues to build. However, policymakers are increasingly having to manage new pressures. Aside from the fallout from trade wars, there remains burgeoning pressure for countries around the world to forge new diplomatic allegiances and strengthen trade ties.
In 2020, it is expected that the trade war will simmer, the slump in the U.S. and global manufacturing will improve, the global macro will benefit from the central bank policy actions over the past year or so, while corporate profits will re-accelerate to the upside. All of the above paint a positive picture for the U.S. and global equities. While the market has been influenced significantly by the U.S./China trade talks, the most impactful factors for fixed-income remain accommodative monetary policy and the lack of inflation. Interest rates will continue to face significant headwinds in 2020. Low-interest rates abroad will keep the demand for U.S. bonds high. Fixed-income assets mitigate risk by providing consistent cash flows, predictable income, and principal preservation. Fixed maturities, locked-in cash flows, and income all bode well when investing in a late business cycle environment.
The US economy was mixed in 2019 and is expected to remain mixed in the first half of 2020. Consumer spending growth should remain moderately strong, supported by job gains and wage growth. Business fixed investment has weakened, reflecting a decrease in energy exploration and problems at Boeing. The halt in the production of the 737 Max will subtract from growth. Trade policy uncertainty and slower global growth were also issues in 2019. The trade truce with China reduces (but does not eliminate) uncertainty. Global economic growth is likely to pick up.
Raymond James. “Economic Snapshot.” Investment Strategy Quarterly. Pg. 29, Web.
Raymond James, “Investment Strategy Quarterly Recap.” Investment Strategy Quarterly. Pg. 8,12,15,22, Web.
Investing involves risk, and investors may incur a profit or a loss. Past performance is not an indication of future results. There is no assurance that any forecast mentioned will occur. Expressions of opinion are as of this date, subject to change without notice and are not guaranteed to occur. Some material in this newsletter prepared by Raymond James for use its financial advisors. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. All opinions are those of the author and not necessarily Raymond James.