Hindsight is 20/20, but finding clarity in future uncertainty can be fuzzy.
AT LPL RESEARCH, as we look forward to the year 2020 and a new decade, some key trends and market signals will be important to watch, including progress on U.S.-China trade discussions, an encouraging outlook from corporate America, and continued strength in consumer spending.
Trade risk, slower global growth, and the impeachment inquiry have garnered a lot of the headlines recently, but behind the scenes the U.S. economy has remained resilient. Economic data has been meeting lowered expectations, indicating an expansion that is still enduring. Most recently, third quarter economic growth was consistent with the long-term trend of this current economic expansion, which is now more than 10 years old.
We expect the U.S. economy to continue to grow in 2020 and support gains for stocks, although we are increasingly mindful of our position in the business cycle. At some point in the future, this record-long expansion will come to a close, leaving investors wondering what’s next. Against this backdrop, questions about the next potential recession and the 2020 U.S. presidential election continue to be top of mind for many investors. While we can’t see into the future, one thing we can predict is that uncertainty in the markets is here to stay. And we are here to help. We offer our Outlook 2020, your guide to preparing for this dynamic—and uncertain—market environment.
Domestic: We are expecting 1.75% U.S. GDP growth in 2020. Our forecast reflects the potential for continued trade and geopolitical uncertainties and the gradual slowing of the economy at this point in the economic cycle.
Global: While Europe and Japan continue to struggle with trade uncertainty, geopolitical concerns, and sluggish growth, we anticipate more growth opportunities in emerging markets’ economies than developed, with countries outside China playing a growing role.
Inflation: Consumer inflation has picked up slightly, and we believe inflation will continue to grow at a healthy, but manageable rate.
Employment: U.S. job growth has been steady, although recently it has started to show signs of moderating. Some cooling down would be expected at this point in the economic cycle.
Recession: Prolonged trade uncertainty and a highly contested U.S. election campaign season lead us to believe that recession starting in the fourth quarter of 2020 or first quarter of 2021 could be possible, but we don’t think it is probable.
Short-lived and shallow yield curve inversions are not worrisome in our view, and we continue to emphasize a blend of high-quality intermediate bonds in tactically oriented portfolios.
We look for solid U.S. equities performance to continue, and we see more potential upside in emerging markets than developed international markets. We continue to prefer cyclical sectors as the U.S. economic expansion endures, and a balance of growth and value styles.
For more investment insights, read the full Outlook 2020: Bringing Markets Into Focus
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. The economic forecasts may not develop as predicted. Please read the full Outlook 2020: Bringing Markets Into Focus publication for additional description and disclosure. This research material has been prepared by LPL Financial LLC.
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