In 2020, we see a slightly better global economic growth environment but modest capital market returns relative to the stellar gains of 2019.
We expect the global economy and markets to take two steps forward as stimulus measures lead to firming global growth, but policy uncertainty will cause markets to periodically take a step back. Easing US-China tensions are likely to be interrupted by periodic flare ups. The US election will come into focus, and markets will ebb and flow with the changing dynamics of the race. Equities should outperform fixed income, but investors will need to decipher how much of the improved earnings backdrop and fading headwinds, such as receding recession risks, are already discounted into stock prices. The push and pull interest rate environment is set to continue.
2020 Key Themes
Economy: Modest Growth Uptick
Global growth should increase, driven by the lagged effect of aggressive monetary stimulus measures and easing geopolitical tensions. We anticipate steady growth in the US of around 2.3% as the resilient consumer continues to carry the economy forward. Growth in international developed markets is expected to stabilize, while activity in the emerging markets should see a slight pickup.
Equities: Glass Half Full
Following the strong gains seen in 2019, we anticipate more average-like stock returns in 2020. Stocks should be well supported by a modest global recovery, accommodative monetary policy and improved earnings trends. However, this improved backdrop is already partially reflected in equity prices. Stocks still remain attractive on a relative basis and should be among the better performing asset classes.
Fixed Income: Push and Pull
We expect fixed income returns in 2020 to be more muted after the stellar returns of 2019. US rates should gyrate given the push of firming global growth and easing geopolitical tensions against the pull of low inflation, aging demographics and the strong demand for yield and safe-haven assets. We anticipate opportunities to lengthen portfolio duration closer to neutral as rates rise.