3 Themes to Watch in the New Year

Many investors worried 2019 would be the year of the recession. However, it was very much the opposite with the S&P 500 returning 31.3%.¹

While we do not expect the same surge in performance in 2020, the economy enters 2020 with low interest rates, the beginnings of a U.S./China trade agreement and consumer optimism. We are monitoring primary factors that may impact markets, including these three themes in particular:

• Trade tensions: Trade concerns remain at the top of the list. Market volatility increased as a result of tariffs and a trading slowdown that began in the first quarter of 2018. ¹ GDP growth has also slowed, both nationally and globally, and businesses have been more hesitant to invest.²
  
  Although a phase-one deal between the U.S. and China has been reached, the details and market implications are still unclear.³ As such, we are watching to see how this deal unfolds.
• Political risk: It’s been a while since political risk has been incorporated into market pricing. Current prices suggest we will continue to steer clear of a recession in 2020 and get some moderate GDP and earnings growth. However, if we end up seeing a higher probability of meaningful policy change in the new year, we will likely see that reflected in market volatility and prices.
• Market focus: During the first and second quarters of 2018, several sectors, namely technology, began to drive growth leaving much of the rest of the market to look on with middling stock price movement.⁴

In the last few months of 2019, we have seen many of these names, including value and international companies, see their stock prices rise appreciably and outperform. ⁵ We’ll be monitoring to see if this near-term trend continues.

Market fundamentals are generally healthy. Although some data points are signaling potential troubles, it is not unusual to have some conflicting signals as this is the uncertain nature of markets. Additionally, U.S. consumers continue to be disciplined – saving money and spending at a sustainable pace – which is providing fuel for economic expansion.

Sources:

1. Yahoo! Finance – S&P 500
2. MarketWatch – Confident consumers keep U.S. economy plugging along, GDP grows 1.9% in third quarter
3. CNBC – Despite the US-China trade agreement, key details are unclear
4. CNBC – Tech stocks led the S&P 500 from 2,000 to 3,000. The sector may still have far to run
5. Yahoo! Finance – iShares MSCI EAFE ETF (EFA)

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