It won’t be a surprise to you when I say that I expect stocks to rise this year but it’s not because I’m a “perma-bull”, as some describe me. I call it as I see it and because I expect economic growth to improve over 2020 both here and abroad, with no expectation that interest rates will skyrocket, then it seems highly likely that stocks will rise.
Before I suggest where it might be wise to direct your money, let’s look at the case for being optimistic on stocks this year:
- Donald Trump needs to get elected and he is the most market-sensitive President ever! He knows if his unusual tendencies spook Wall Street and KO stocks, he will KO his chances of re-election;
- This is the fourth year in the Presidential cycle and the second-best year for stocks. All should remember how good that was in 2019. The US was up 29%, while we added 24% (with dividends);
- As I showed in Saturday’s Report, most investment firms in the States expect a positive year for stocks but the average view suggests a 5% gain for the market is more likely. I expect it to be higher but I also expect some sell offs, as economic data and US electioneering (on top of geopolitical risks from the Middle East) come into play. Also note there are forecasters tipping 10-20% gains for US stocks in 2020, such as Longview Economics but they also think a near-term correction is highly likely, given the high valuations right now; .
- The World Bank expects global economic growth to lift from an estimated 2.4% pace in 2019 to 2.5% in 2020. And while this organisation is far from being infallible, it often gets the direction of growth right;
- Another trade deal (phase 2) and an improving Chinese economy will be good for global growth and market confidence. In Switzer Daily today, I pointed out the following: “In the US, many of the top investment groups are telling their clients that overseas [stock markets] have more upside than Wall Street. CNBC recently pointed out that ‘since 2010, the S&P 500 rose more than 188%, an annualized rate of about 11.2%. The MSCI World ex US index saw much more modest gains, climbing 50.5% overall or roughly 4.2%.”. Here’s what the Bespoke Investment Group said in a note to its US customers last month: “If your asset allocation has significant domestic exposure and little-to-no international equity exposure, we think now is an excellent time to make a shift”;
- Locally, a stronger China and a Federal Government that will have to spend big time to help the economy and the Prime Minister’s standing due to the bushfire tragedy, means we should see better economic growth in the second half of 2020. That said, I hope we don’t end up with a short recession because of the serious losses to property, business, lives and people’s confidence because of the fires; and
- Other positives such as a Brexit solution, the likelihood that the Federal Reserve won’t rush to raise interest rates, especially in an election year, and given our central bank will probably cut interest rates in February to help the economy offset the negatives from the fires, then there are reasons to believe that stocks can head higher over 2020.
So what should you be thinking about investing in for the year ahead?