In 2019, investors enjoyed a pretty good year. The S&P 500 Index, one of the most widely used tools for measuring stock performance, was up 30% for the year, and other indexes also rose significantly. But now that we’ve turned the page to 2020, what can you expect from the financial markets?
First of all, keep in mind that it’s always difficult to predict how investments will perform, because any number of factors – economic, political, even meteorological – can affect the markets in the short term. Nonetheless, here are four areas that could play a role in the investment world in 2020:
Consumer spending – In recent years, consumer spending has helped drive economic growth, which, in turn, has supported rising share prices over time. In 2020, the combination of low interest rates and a strong labor market may continue to support strong consumer spending. However, some possible headwinds remain, in the form of sluggishness in business investment and continued trade uncertainty between the U.S. and China, despite the recently signed partial trade deal.
Interest rates – As mentioned above, interest rates are still low, which is usually good news for investors, because low rates make it cheaper for businesses to borrow to expand their operations – and growing businesses are often attractive investment opportunities. Investors will closely follow the Federal Reserve this year for signs of where rates may be headed. Given that global interest rates are also quite low – and even negative, in some cases – it seems likely that the Fed will keep rates low for the foreseeable future, but an unexpected pickup in inflation could possibly lead to a policy reversal.
Global growth – Global growth slowed in 2019, but some factors point to the possibility of improved growth in 2020. For one thing, if we do see an improved trade relationship between the U.S. and China, it could help accelerate or increase global trade and manufacturing. Also, major central banks have been trying to boost their economies by cutting interest rates, and since there’s usually a lag between rate cuts and their impact, we could see evidence in 2020 that these stimulus efforts are working.
Politics – Of course, 2020 is an election year. At this point, no one can accurately predict the outcome of either the presidential or congressional races; furthermore, it’s also difficult to forecast the reaction of the financial markets to any change in political leadership. Issues such as taxes, tariffs and regulations can influence market sentiment – sometimes far in advance of their actual effect on the economy – but it’s probably unwise for you to adjust your investment strategy in response to what may happen. In general, it’s a good idea not to “play politics” with your portfolio.
No matter how any of the above factors play out in 2020, you’ll almost certainly help yourself by following a long-term investment strategy based on your goals, risk tolerance and time horizon. Along the way, you may need to adjust your portfolio somewhat in response to external events, but you don’t want to overreact to the headlines of today – or the anticipated headlines of tomorrow. Ultimately, the decisions you make will determine your success as an investor.
This article was written by Edward Jones for use by your local Edward Jones financial advisor.
Edward Jones, Member SIPC