Economic and Investment Outlook for 2020

Economic and Investment Outlook for 2020

This year we wish to focus on the main questions investors are asking coming into 2020:  Are U.S. stocks and bonds overvalued?  What does this mean for investors?

To read the full report please click here: WESCAP 2020 Economic and Investment Outlook

2020 Outlook Summary

• Economic Growth:  Real GDP growth should remain positive around the world for most developed and emerging market economies. Increasing monetary and/or fiscal stimulus around the world should benefit consumers, workers and corporate earnings.  Less restrictive U.S. monetary policy and relaxation trade tension is expected to boost U.S. growth later in 2020. There is a shrinking risk of a U.S. or global recession in 2020-2021.
• U.S. Equities:  A nearly 30% increase in the S&P 500 in 2019 resulted in most stocks moving from slightly undervalued to modestly overvalued, although low interest rates suggest a fair valuation. This translates to modestly positive returns in 2020 expected for stocks.  Low interest rates continue to support stocks, other assets and the economy.  
• Foreign Markets:  Economic conditions in many larger foreign developed and emerging market countries are expected to improve slightly.  Valuations in non-U.S. stock markets are more attractive than in the U.S.  There is a reasonable chance of a stable or declining dollar, which would also favor owning more non-currency-hedged foreign stocks and bonds. Therefore, we continue to have a substantial allocation to these markets.  
• Fixed Income:  U.S. interest rates are expected to rise if inflation accelerates. Therefore, our fixed income allocation is more heavily weighted to short-term and adjustable rate securities and bonds in higher-yielding sectors and countries.
• 2020 U.S. Elections:  Current predictive indicators suggest a Republican president and Senate and Democratic House following the elections.  This may have positive implications for tax rates and a new negative impact on trade issues.  However, a Republican presidential victory is far from assured, and if a Democratic president should be elected, this could cause a 5%-15% stock market decline due to corporate income tax and other regulatory cost concerns.  However, a Republican Senate is unlikely to enact another major tax reform.  WESCAP does not endorse any candidate or party, but does try to understand the financial impact from possible election results.