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January 2020 Market Commentary: 2010's and 2020
Over the last decade, 2010 through 2019, stocks and bonds beat expectations. Staying invested produced solid long term gains. Any investor attempting to time the market based on "intuition" or "gut instinct' lost significant opportunity. U.S. stocks dominated. Monetary policy drove low interest rates, which allowed banks to rebuild balance sheets, businesses to borrow cheaply, homeowners to refinance and first-time buyers to enter the housing market.
Spurred by low interest rates, economic fundamentals began a slow, although sometimes halting recovery. Near the end of the decade, lower taxes and fewer regulations added momentum to markets. Some of that momentum was offset by trade disputes, particularly with China. Entering 2020, there's uncertainty around global trade, increasing competition, geopolitical instability, and tightening labor markets. These factors could constrain business growth. If CEOs continue to worry about a recession, they may reduce capital spending in an effort to build cash. Going forward these uncertainties may be offset by an expanding global economy, expected to grow by 3.4% in 2020.
Additionally, if Phase One of the U.S.-China trade agreement (signing expected January 15) reveals substance, that would further bolster CEOs confidence. Business investment would very likely continue. Recently, the Chief economist of The Conference Board, a global business research think tank headquartered in New York which includes 500 of the top-2000 global companies among its members, stated, "Given a slightly better outlook for the global economy and an easing of trade tensions, we anticipate that a drumbeat of negative sentiment — which can become a self-fulling prophecy — can be avoided, and that we will see more confidence about business prospects in 2020."
That said, we should avoid a recession in 2020. Goldman Scahs sees less than a 20% chance of one occuring. However, don't expect the above average market gains of 2019, but definitely expect continued market volatility, both down and up, arising from investor sentiment reacting to news events.
For past commentary look to our pages: The 24/7 News-info Cycle and Your Investments and The Great Recession of 2007-2009.
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