2020 “Sure Things”
Every January, I start keeping track of the predictions for the upcoming year I hear in the financial media and from financial advisors and investors. Today we’ll look at a list of some common “sure things” I’ve been hearing for 2020:
- U.S. economic growth will be durable enough to avoid a recession, but disappointing to those expecting improvement. GDP growth will slow from about 2.3% in 2019 to 1.8% in 2020.
- Corporate profit growth will continue to be strong. S&P 500 companies’ earnings will reach a cumulative $178 per share, up from an estimated $162 for 2019, a 10% increase.
- While multiple expansion is likely behind us, reduced trade tensions, easy monetary policy and strong earnings growth will produce high single-digit returns for U.S. stocks.
- Inflation will remain tame. Vanguard’s Joe Davis wrote, “Secular drags, including globalization, technological innovation, and well-anchored inflation expectations have been keeping inflation contained in recent years; and we expect this to persist over the medium and long term.” The consensus forecast of professional economists is for the CPI to increase at just 2.1%. The market certainly agrees, as the spread between 10-year TIPS and 10-year nominal Treasury bonds is only about 1.8%.
- With slowing economic growth and tame inflation, it’s now safe to extend maturities. Futures markets show a much greater probability that the fed funds rate will be lower at the end of the year (52%) than higher (just 2%).
- This sixth sure thing follows from the fifth. The interest rate environment favors REITS. Thus, investors should overweight them.
- Large-cap stocks will continue to outperform small stocks, as they have over the last decade. The authors of the Harvard Business Review article “The Gap Between Large and Small Companies Is Growing” explained, “Large corporations are more and more likely to maintain their dominant positions, while small corporations are less and less likely to become big and profitable.”
- With concerns over continued massive budget deficits combined with the outlook for accommodative monetary policies around the globe, gold will put in another strong performance.
- This is one I’ve been hearing from a lot of investors: Climate change will lead to another year of significant losses to reinsurers. Thus, investors should avoid this asset class.
That’s my list. I’ll report back at the end of each quarter.
Larry Swedroe is the director of research for The BAM Alliance, a community of more than 140 independent registered investment advisors throughout the country.