Key Points

  • The U.S. economy split sharply in 2019—manufacturing activity lagged services, corporate profits lagged stock performance—while investor sentiment surged. How long will these divergences continue in 2020?

  • The global economy is showing signs of stabilization, but global stocks priced in much of that improvement last year. This could mean weaker global stock market performance in 2020 than in 2019, despite a better economy.

  • Treasury bond yields are likely to move modestly higher during the first half of the year. However, market inflation expectations are low, implying the market may be unprepared for an unexpected rise in prices.

Listen to the latest audio Schwab Market Perspective.

Some trends in the U.S. economy hit a fork in the road last year—manufacturing activity lagged services, corporate profits lagged stock performance—while investor sentiment surged. Although some market headwinds have faded as global growth has improved and trade tensions have de-escalated, some still remain—including tariffs and dampened corporate animal spirits. The question is how long these divergences will continue, and how they’ll be resolved.