Welcome back to What’s Happening Now in this holiday-shortened week. We too will be brief, although we did want to share a number of yearend thoughts on what’s been naughty and what’s been nice as the focus shifts from 2019 to 2020.
Let’s Look Back to Get Ahead
In a nutshell, 2019 has been nice to stock investors heading into the final days of the year, posting heady gains of 22% year to date. The naughty part is that 2019 is going to be a tough act to follow. Since 1950, plotted by Bloomberg, the S&P 500 Index typically struggles in years after achieving gains this high.
What’s Not to Like About 2019?
A naughty Fed, we would posit for the heady equity gains achieved have not discounted the stark reality that this has been a Fed-driven rally. GDP has been tanking since June 2018. Coming into 2020, equity oscillators are overbought and GDP in Q4 2019 is not expected to provide a lift with estimates coming in at a consistent 2.1%
Consumers Are Key
The U.S. is a consumer-driven economy. The mighty consumer effectively drives our GDP. So, growth in 2020 will in large part depend upon a cooperative consumer.
Consumers have been nice so far, this 2019, carrying the economy and bolstering holiday cheer, never mind the naughty, namely tumbling GDP, messy tariff and trade policy, weak manufacturing and waning business investment.
Here’s what’s not so nice, though. We’re heading into 2020 with inflation well below the FOMC’s 2% inflation target.
It’s been a weird year when it comes to the U.S. Treasury yield curve. Negative sloping for much of 2019, stepped-up Fed stimulus was nice and restored the curve to upward sloping – over a short period of some 90 days, which casts doubt that this was an economically-derived fix.
According to Fed Chair Jerome Powell, “both the economy and monetary policy right now are in a good place.” We’re not so sure. Neither has been the bond market been so sure, for the yield curve has been inverted for most of 2019, leaning towards recession.
Rate cuts have been tabled, not so nice. We’ll see how that goes in 2020.
Closing Out 2019
Here’s our takeaway as we close out 2019. We are in the 11th year of expansion and risks remain. Growth is not where it needs to be. Inflation is not where it needs to be. Debt levels are not where they need to be.
The World Bank was quick to warn last week that the biggest, fastest, and broadest buildup of debt across emerging and developing economies in a half century means policy makers must quickly strengthen protections against financial shocks. Financial shocks trigger recessions.
Can the Fed outlaw a recession for 2020? We don’t think so, reported here.
As to the risks ahead, we’ll be addressing those in CSR’s to come, along with solutions for whatever economic environment may hit in 2020, built upon Storm Tacker and our soon-to-be-revealed, all-weather portfolio solution – come rain or come shine, come a naughty or a nice 2020.
And that’s where will leave it for now.
Happy Holidays to All!
Like you, we’ll be taking a break for the rest of this week. Looking ahead, we can’t wait for 2020. It’s going to be different. We’ll be “listening to the markets” and will be here to help you navigate whatever lies ahead.
Matt and Tom
9 responses to “2020: NAUGHTY OR NICE?”
December 23 2019