What’s Ahead for Investment Markets in 2020?

What’s Ahead for Investment Markets in 2020?

Investors who have had money invested in the U.S. stock market are celebrating what has turned out to be a very good year. After a rocky end to 2018, the Dow Jones Industrial Average rose by about 20% this year, even hitting an all-time record high of 28,299 in December. Yet that success also raises some big questions for investors. Will the current bull run continue in 2020, and what is the best strategy to preserve capital and generate returns in the coming year?

The stock market appears to be rolling into 2020 on a high note, which makes it easy to forget the wild ride investors have experienced on Wall Street over the past year. For example, performance was bumpy in August due to concerns about a trade war with China and fears that the U.S. could be headed for a recession. One day alone – August 14th – saw the Dow plummet a whopping 800 points.

Individuals looking to sharpen investment strategies for 2020 are trying to get a good read on what’s ahead for the economy and investment markets. Is it time to sell assets, take advantage of gains and adjust investment portfolio allocations to different investments or asset types? Before making those decisions, it is wise to assess where markets are at, and where they might be headed in 2020.

Key economic indicators to watch

Economic Growth:Economists have mixed opinions on the economic outlook. Many have been waiting for the “late cycle” market to run out of gas. Yet the current pace of low and slow growth appears to be on a steady course to continue in 2020 and 2021. The latest forecast from the Federal Reserve supports the view that the economy is coming in for a soft landing. The Fed is predicting that GDP growth will slow from 2.5% in 2018 to 2.2% in 2019 followed by growth of 2.0-2.2% in 2020 and 2.0-1.8% in 2022. Although some have complained about the tepid pace of economic growth, it is positive that economists appear to be pushing concerns about a recession further off into the future. Some of the factors contributing to that positive forecast are easing trade tensions, high employment and strong consumer spending.

Low interest rates:The Federal Reserve cut interest rates three times in 2019 to help stimulate economic growth. Although the low rates have been a positive for borrowers who have access to low-cost capital, it does put a further squeeze on investment yields on fixed income assets, such as corporate bonds. Yields on 10-year Treasuries sank as low as 1.47% this past summer and remained below 1.9% in December. Investors are expected to continue to hunt for opportunities to generate higher yields in the coming year.

Inflation:The good news for investors is that inflation has been negligible for the past several years. Inflation was a slight 1.5% in 2019 and is expected to climb slightly higher to 1.9% in 2020 and 2.0% in 2021.

Tips for investing in up and down cycles

There are plenty of wild cards that could derail current market forecasts, including a flare-up of trade tensions, global fallout from Brexit and the upcoming U.S. presidential election in November. Oftentimes, the best advice for individuals is to develop an overall investment strategy, as well as to follow some fundamental investment guidelines to create good portfolio stability and more favorable blended returns.

  • Know your risk tolerance. The ability to tolerate risk – and sleep at night – can range widely depending on each individual. Some investors are very comfortable taking on high investment risk that may achieve higher returns, while others need a more conservative approach. Some of the factors that influence risk tolerance are an individual investment time horizon, as well as whether individuals are fully reliant on investment income or have other sources of income.
  • Diversify portfolios. Don’t put all of your eggs in one basket. Diversify investment portfolios across different types of assets, industries or geographic regions. In particular, real estate can be a good portfolio diversification strategy as real estate is a tangible asset that offers advantages, such as preservation of capital and an ability to hedge against inflation by raising rents. In addition, real estate is a good portfolio stabilizer as values move more slowly and don’t experience the same wild swings in values on a day-to-day basis as compared to stocks.

As with any investment and financial planning strategy, it is always wise for investors to conduct careful due diligence and work with a trusted advisor. The current dynamic environment does require active management of an investment portfolio. Overall investment strategies may need to be modified to account for slowing growth and market risks to help preserve capital and achieve individual investment goals. It is especially important to be able to get reliable investment insight and advice to help navigate periods of uncertainty and safeguard investments during up and down market cycles.

As it relates to any financial planning decisions, it is wise to work with a trusted financial advisor. Contact CanAm Capital Management to learn more about our services.

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