A bird’s eye view of the 2020 economy

Did you know only 8% of people stick to their resolutions?  Every December 31, people all over the world make promises to read more, fill the passport or hit the gym. Some resolutions are economic, as people strive to invest or save funds or even be smarter with money.

With the economic matters in mind, there are several notable 2020 trends and market signals to watch. Trade tensions between the U.S. and China have eased but may resurface, financial results from corporate America are expected to be modest but positive and steady consumer spending is likely to continue. 

Modest additional U.S. economic growth of 1.75% as measured by GDP is expected for 2020. While the anxiety produced by trade uncertainty and low business investments still lingers, consumer spending will likely remain a driver of economic growth.

International markets will adapt to geopolitical events, trade concerns and slow growth. Initial signs of manufacturing improvement overseas suggest economic expansion from countries other than China will play a significant role in global growth. 

The big question on people’s minds is this: “Is a recession coming?”

“We monitor several early-warning recessions signals and while a limited number are flashing caution, the majority continue to reflect modest, albeit slow, economic growth,” said Anthony Valeri, Investment Management Director for Wealth and Fiduciary Services at California Bank & Trust[cite::243::cite]. “The odds of a recession in late 2020 or early 2021 remain low.”

As a Chartered Financial Analyst who works with clients to help them understand complex financial strategies and market dynamics, Valeri offered several other insights about what could be ahead for the economy:

• Healthy consumer spending will drive U.S. economic growth
• Despite budget deficits, bond yields will remain stable
• Manufacturing is weak but signs of stabilization are evident and, combined with reduced trade tensions, set the stage for improvement
• The job market remains healthy with wages rising
• U.S. stocks are expected to outperform bonds

Volatility may return in 2020 but the bull is likely to raise its horns with U.S. equities finishing the year modestly higher. U.S. stocks offer greater potential than international equities, except for a possible upswing in emerging markets.

“The winner could be predicted by the stock market,” said Valeri.

In fact, every presidential election from 1928 to the present can be tracked by the performance of the S&P 500 Index with limited exceptions. When the market is up a few months before the election, the incumbent party remains in office. If stocks are down, a change of power may occur.

This indicator isn’t perfect – it missed the mark in ’56, ’68, and ’80 – yet, it was correct with the last 20 out of 23 presidential elections, roughly 87% of the time. 

It’s still early in the year, but the policies from the leading presidential candidates are coming into focus. What are some of the polices that could influence 2020 markets?

Trade

Phase one of the new trade deal with China was signed in January 2020, limiting but not eliminating the impact of tariffs. However, an unraveling of the trade deal or limited progress on phase 2 negotiations could pose a headwind to international trade and economic growth. Trade views among the presidential candidates vary but a few candidates would likely continue to take a hard line with China on trade.

Taxes

Increasing the corporate tax rate is a talking point with some candidates, as is a potential increase in individual tax rates, particularly on the wealthy. A change in tax policy is dependent upon congressional approval and the continued likelihood of a divided Congress could make the passage of more extreme changes unlikely. Any changes to tax policy could have implications for economic growth beyond 2020.

Healthcare is in the air

A Medicare expansion will be a hot button topic during debates and discussion of capping drug prices is in its initial stages. The form any healthcare legislation may take could turn up the heat in the healthcare sector, with varying implications for industries ranging from health insurers to pharmaceuticals.

Financial Services in limbo

Additional government regulations on the financial industry is possible with a new president. Added regulation would increase compliance costs for some financial services firms.

Take the next step to evaluate the economic outlook for 2020. Learn more by downloading the ”Outlook 2020” Whitepaper. [cite::171::cite][cite::172::cite]