The many gloomy predictions for 2019 did not come to pass, but can we be more optimistic for 2020? Franklin Templeton Fixed Income CIO Sonal Desai draws the key lessons from last year and outlines what we should expect for the year ahead and her main concerns, with political uncertainty top of the list.

New year, new decade—we’re off to the races. I have a few concerns about 2020, and some ideas on how to make it a successful year from an investment perspective—which I have just shared in Barron’s 2020 Roundtable in New York. But before I delve into that, let me elaborate on the lessons of 2019 and the underlying trends carrying us into the new year.

None of the doom-and-gloom predictions materialized in 2019. Trade tensions did not spiral into out-of-control trade wars; new tariffs affected selected companies and industries, but they did not have a major macro impact. The US economic expansion did not halt—it went on to become the longest in history, with unemployment at a 50-year low. China’s economy did not stall; it just slowed to a still-healthy 6% gross domestic product (GDP) growth rate.

US stock markets had a great year (albeit with a massive assist from the Federal Reserve [Fed]). The S&P 500 Index ended up nearly 30% and the NASDAQ more than 35%—the best performance in six years for both indexes—and the Dow Jones Industrial Average gained 22%.1

A Wall of Worries?

The lesson, in my view, is that last year too many people in the media and in the markets worried too much about the wrong things. Here’s what I think we should expect—and in some cases worry about—in 2020:

I believe US politics will be the main source of volatility as we head toward the 2020 US presidential election in November. Some of the leading Democratic contenders have policy platforms that echo the Obama presidency, while others have put forward proposals that would fundamentally alter the business environment with a likely severe negative impact on growth and markets.

Even with a divided Congress, a new administration could enact substantial regulatory changes via executive order—as the current administration has done. I think the extent to which de-regulation measures over the past three years have supported economic growth has been seriously underappreciated—and we are similarly underestimating the negative impact that a rapid resurgence in regulations could have.