With 2019 wrapping up we thought a few predictions might be in order. We do not want our predictions to simply appear as “wild guesses” or “fliers” just to illicit a response from clients. We see our responsibility to clients as one bound by a sacred trust. We are entrusted with hard-earned savings to navigate the markets in an effort to deliver performance. Not to make wild predictions with hope of getting one right.
So, while these predictions are predicated on our current analysis of markets and the economy, we will continue to adapt to changes as they occur. We will never waiver from our responsibility to deliver performance and the highest level of service to our clients.
Here are some of our predictions for 2020:
- The conventional view, following such a strong year for stocks, is that investors have been waiting for the new year to sell stocks to push capital gains taxes into the next year. We believe there is a strong chance that stocks continue to rally despite the urge to sell and lock in gains. This rally could continue until the House delivers the Articles of Impeachment to the Senate.
- We wonder if the House may wait until after the State of the Union to deliver the Articles of Impeachment.
- The energy sector, which performed poorly in 2019, may turn higher as the global recovery (post BREXIT) takes hold.
- Inflation will finally begin to show sustained levels above 2%. This could have a positive effect on energy and commodities. It should also lead to a steepening yield curve. Such a steepening should also have a positive effect on bank stocks.
- We do not expect the Federal Reserve to raise interest rates in 2020.
- Bank consolidation will begin to accelerate as larger banks become emboldened to expand by the improving interest rate environment and diminishing regulations.
- The Senate will ultimately acquit President Trump. We expect stocks to suffer during the Senate hearing but rally after its verdict.
- The industrial recession, which has been in place for the past year, will abate. The implementation of the “Phase 1” trade deal with China (expected by January 15) should invigorate the industrial sector leading to an upswing in manufacturing and transportation.
- While a “Phase 1” trade deal is signed in January, no significant progress is made on “Phase 2” in 2020.
- President Trump wins re-election.
- We do not expect a recession in the U.S. in 2020 but do expect one to emerge in early 2021. History has shown that when the yield on the 2-yr Treasury is higher than the 10-year Treasury a recession has followed approximately 18 months later. Much was made of the yield curve “inverting” in the summer of 2019 fueling fears of a recession occurring within weeks. While those fears seem to have faded as stocks rallied, we expect this event to be picked up again by the press and prove prescient of a recession in 2021.
- We expect stock prices to rally into the election in anticipation of a Trump re-election and then sell off shortly after the election. Despite the selloff, stocks end the year higher than they entered 2020.
- We anticipate spikes in volatility for stocks will occur in February, July and November.
- While we expect interest rates to rise in 2020, they should remain below historical averages. Fear of a recession may actually bring interest rates down later in the year as investors lock in rates ahead of a slowdown.
We wish everyone a happy and safe 2020.
Kessler Investment Group, LLC