Investors considering their US allocation in 2020 may feel nervous about the macroeconomic and political crosswinds blowing across the investment landscape.
Here we highlight five areas of potential concern where we asked our investment professionals to share their perspective:
1. Will there be a recession in 2020?
It’s a question that has been on investors’ minds for years now, and for good reason: Recessions can be painful. In 2019, the various twists and turns of the U.S.-China trade war and a buildup in inventories led to a manufacturing slowdown in the U.S., triggering concerns about an imminent recession.
“We have seen a tale of two economies in the U.S.: a weak industrial sector but a reasonably healthy domestic economy, thanks largely to a resilient U.S. consumer sector,” adds Spence.
The manufacturing slowdown and trade war captured the attention of policymakers as well as investors. The U.S. Federal Reserve cut interest rates three times in 2019, and major central banks around the world have taken similarly aggressive action to maintain easy monetary policy.
“It takes a while for monetary policy to have an impact,” explains Spence. “But we are already starting to see some positive signs with a pickup in the housing market. Given the low-rate environment and the health of the U.S. consumer, I believe we are going to see a reacceleration in the economy in 2020, barring some unexpected shock.”
Bottom line: Although recessions are notoriously difficult to predict, easy monetary policy and a strong consumer should keep the U.S. economy on a growth path in 2020.
2. Should I get out of the market during this election year?
U.S. presidential elections have always been contentious affairs. As we get closer to November’s general election, investors can expect divisive political news to increasingly dominate the headlines, unsettling markets. That’s likely to be particularly true this year during a hotly contested Democratic primary season, which officially kicked off February 3 in Iowa.
Investors may be tempted to sit on the sidelines until the smoke clears. Indeed, during previous election cycles domestic investors appear to have done just that, rotating money into money market funds during election years, then moving back into stock funds the following year.