Almost Everything Wall Street Expects in 2020

2020-01-02

For the professional prognosticators and market mavens of Wall Street and beyond, there is at least one easy prediction to make about the next 12 months: Investors are going to earn less. A lot less, probably.

“The double-digit returns of 2019 will be hard to repeat” is a phrase littering almost every investment outlook for global markets in 2020. Despite the trade war, political turmoil and more, virtually all major assets just posted a once-a-decade performance, and even uber-bulls know the chances of repeating the feat are slim.

Bloomberg News is back with its reader’s digest of research notes for the year ahead. Presented below by macro theme, asset class and institution is a compilation of more than 500 calls, bets and threats about the markets in 2020. They have been hand-picked, collated and condensed and represent the top-line takeaways from scores of the biggest financial institutions.

All institutionsAberdeen Standard InvestmentsAmundi Asset ManagementAXA Investment ManagersRobert W. Baird & Co.Bank of AmericaBarclaysBlackRock Investment InstituteBMO Capital MarketsBNP Paribas Asset ManagementBNY MellonCapital EconomicsCitiColumbia ThreadneedleCredit SuisseDeutsche Bank Wealth ManagementEastspring InvestmentsEvercore ISIFidelity InternationalGoldman SachsHermes Investment ManagementHSBCJPMorgan Asset ManagementJPMorgan Chase & Co.Macquarie Global MacroLombard Odier Investment ManagersMorgan StanleyNatWest MarketsNordea Asset ManagementNorthern TrustOppenheimerOxford EconomicsPictet Wealth ManagementPineBridge InvestmentsPrincipal Global InvestorsRBC Wealth ManagementRobecoSchrodersSociete GeneraleStandard CharteredState Street Global AdvisorsTD SecuritiesUBSVanguardWells Fargo Investment InstituteWells Fargo Securities

Key themesAsset classInstitution

BASE CASE
- Aberdeen Standard Investments
  Amid global economic stagnation and rising political uncertainty in a low-yield world, investors should look beyond the comfort of conventional asset classes with a cautious, diversified approach for better risk-adjusted returns.
- Amundi Asset Management
  Instead of fearing a global recession, investors should focus on adjusting the portfolio exposure to the de-globalization trend. They should also prepare for a mature and extended credit cycle, with higher liquidity risks due to more stringent regulations post-2008 crisis.
- Bank of America
  The trade war remains at the core of our macro forecasts, while of course, 2020 U.S. elections approach. We are moderately optimistic, as reflected by our expectations for higher U.S. yields and a softer dollar in both G10 and EM.
- Barclays
  We expect a tepid recovery to uninspiring trend growth, but with diminished economic and policy risks. In light of the very low returns on offer in core bond markets, we think this sets the stage for a grind higher in risk assets.
- Barclays
  We believe that there is a strong case to expect positive, if modest, returns in major asset classes.
- BlackRock Investment Institute
  Growth should edge higher in 2020, limiting recession risks. This is a favorable backdrop for risk assets. But the dovish central bank pivot that drove markets in 2019 is largely behind us. Inflation risks look underappreciated, and the lull in U.S.-China trade tensions could end. This leaves us with a modestly pro-risk stance for 2020.
- BlackRock Investment Institute
  Our base case is for a mild pickup supported by easy financial conditions, with a slight rise in U.S. inflation pressures. We see China’s economy stabilizing, but little appetite for replays of the large-scale stimulus of the past. We see the growth uptick taking root in the first half of the year, led by global manufacturing activity and rate-sensitive sectors such as housing.
- BMO Capital Markets
  Our baseline assumption is that the economic damage triggered by the trade war will continue spreading to the broader economy (cap ex, inventories, international trade, and real estate) and result in a mild technical downturn defined by as little as two consecutive quarters of negative real GDP growth; certainly nothing as dramatic as the financial crisis.
- BNP Paribas Asset Management
  “Fragile goldilocks” holds—stabilizing data, loose central bank policy, short-term de-globalization dynamics supporting risky assets.
- Capital Economics
  We think that returns from “risky” assets – equities, corporate bonds, REITs and industrial commodities – will generally beat those from “safe” ones – government bonds and precious metals – again over the next two years, as the global economy finds its feet. However, in our view both will be weaker than in 2019.
- Capital Economics
  Our proprietary models show the risks of a U.S. recession are receding and we expect the drop in market interest rates this year to underpin a gradual cyclical recovery in 2020 and beyond.
- Citi
  Risks may still be tilted to the downside, but we are not forecasting a global (or U.S.) recession in 2020. Citi’s economists think that global growth will settle in around 2.7% year-on-year in both 2020 and 2021 as global manufacturing activity rebounds.
- Columbia Threadneedle
  Our base case is that there is unlikely to be an acceleration in growth and we are equally unlikely to see a deep recession. In that environment, the long-duration element of markets – be that in fixed income or equities – remains relatively attractive.
- Deutsche Bank Wealth Management
  History suggests that years of sharp gains (as in 2019) are not usually followed by falls, but often instead by more modest growth - so 2020 should still be worth approaching in a positive spirit.
- Eastspring Investments
  An extended global growth cycle: The U.S. will enjoy its longest post-war expansion and a recession is not our base case. Fiscal policy will likely matter more than monetary.
- Fidelity International
  The world will avoid a global recession in 2020. The earnings outlook is improving, but U.S. election risk remains high.
- Goldman Sachs
  Risky assets benefited from central bank easing in 2019, but now growth will need to drive returns. We expect moderately better economic and earnings growth, and therefore decent risky asset returns. But we also see plenty of risks, and more challenging valuations, so the upside is limited.
- Hermes Investment Management
  We actually see 2020 as rich in opportunities, years in which there are super normal (more than one standard deviation above mean) returns in fixed income are almost always followed by meaningfully positive years and we expect 2020 to be similar.
- HSBC
  Our baseline scenario for 2020 is relatively favorable. We anticipate slow and steady growth, low inflation, accommodative policy and single digit profit growth. In our view, a recession seems like more of an issue for 2021, or even beyond.
- JPMorgan Chase & Co.
  Looking into 2020, we believe that the positive drivers will continue, at least for the first half. Some negatives could start dominating later on, making 2020 a proverbial year of two halves.
- JPMorgan Chase & Co.
  Returns to be generally worse than 2019, which delivered above-average gains on all sectors but Commodities and EM FX. The spectrum of total return projections runs from single-digit losses on DM bonds and commodities to low single-digit gains on much of credit (U.S./euro HG, EM sovereigns) to mid-to-high single digits on EM corporates and U.S. HY.
- Lombard Odier Investment Managers
  We see a potential catch-22 situation arising in 2020 as policy, economic and political dilemmas loop between each other, and create a more complicated investment landscape.
- Lombard Odier Investment Managers
  Our base case assumes a shallow trajectory of global growth in 2020. We do not see a V-shaped recovery in global capex/business investment, despite the likely confirmation of a phase one trade deal between the U.S. and China. We see the risk of recession and a hard landing as moderate (less than 20%) over the coming 12 months, and note that the likelihood of such risks has fallen lately.
- Macquarie Global Macro
  We expect a modest but broad-based economic recovery, which should in turn support a material improvement in global risk appetite, with equities, yields and industrial commodities all moving higher, as fears of recession fade. In this world, the dollar would be likely to gradually deflate, supporting the expected EM recovery.
- Morgan Stanley
  2020 will be about an uneven global recovery colliding with uneven valuations. Sequencing the cycle is our key theme for the year ahead. This strategy means being more aggressive in better-valued markets with early-cycle upside and more defensive in pricey markets that have less room to run.
- Morgan Stanley
  Easier monetary policy and trade stabilization will help global growth accelerate, but only stabilize GDP growth in the U.S. at 1.8%, leaving pressure on corporate margins from tight labor markets.
- NatWest Markets
  We prefer growth over monetary assets: Central banks will be more reluctant to ease. Fiscal policy will partly fill the void.
- Nordea Asset Management
  We expect the economic slowdown to spread till the first half of 2020 before China leads a moderate economic rebound that should slowly extend into 2021.
- Northern Trust
  We are moderately overweight risk going into 2020 as the global economy is showing signs of stabilization after an episode of mid-year weakness.
- Pictet Wealth Management
  Accommodative monetary policies and tepid fiscal policies will help contain further worries over politics and trade and prop up growth to some extent. In these circumstances, 2020 is likely to see low returns across the main asset classes.
- PineBridge Investments
  Unwinding 2019’s flight to safety will unfold in stair steps throughout 2020, boosting cyclical equities, European and Japanese small caps, and emerging market local currency debt. In a sea of pessimism, it pays to lean portfolios constructively.
- Principal Global Investors
  We don’t foresee a recession in the next 12 months, so there is no reason to take risk off the table. Yet, investors will increasingly need to be nimble and actively seek out opportunities, whilst also retaining a largely defensive positioning, in this low return, high risk world.
- RBC Wealth Management
  Central banks’ accommodative monetary policies, as well as some additional fiscal stimulus, will keep most developed economies growing through 2020 and probably longer. This should engender growth in corporate earnings, dividends and buybacks. Share prices should follow all these higher.
- Robeco
  We expect the economic expansion to last a little longer, and the equity bull market to enter the last leg of a near decade-long climb.
- Robert W. Baird & Co.
  We note that our base case (mid-single-digit gains for the S&P 500 in 2020) falls well within the range of outcomes being expressed by strategists at other firms. From our perspective, the distribution of risks at this point suggests slightly more likelihood that the deviation will be to the downside than to the upside.
- Schroders
  Bond yields and economic growth are likely to remain subdued in 2020, with equities remaining relatively attractive.
- State Street Global Advisors
  We believe that the global economic recovery will continue in 2020, although it may have to sidestep substantial risks to sustain momentum. Those risks notwithstanding, renewed monetary policy support and resilience in consumer spending and services should help to propel the cycle forward.
- TD Securities
  The first half of 2020 will repeat many of the themes from 2019: further central bank easing and disappointing growth in some regions, with inflation struggling to reach target across most major economies. By mid-year, looser financial conditions and gradually fading uncertainty should mark an inflection point, with global growth slowly returning to trend over the following quarters.
- UBS
  We expect a recovery in 2020 but a much weaker one than consensus.
- Vanguard
  Global growth is set to slow further in 2020, weighed down by the U.S.-China trade standoff and continued political uncertainty. Investors should expect lower economic growth and periodic bouts of volatility in the near term, given political risk, persistent threats to growth, and high asset prices.
- Vanguard
  Vanguard’s global market outlook suggests a somewhat more challenging environment ahead. Based on simulated ranges of portfolio returns and volatility, the diversification benefits of global fixed income and global equity remain compelling.
- Wells Fargo Investment Institute
  In 2020, investors should stay fully invested, but take targeted risk out of their portfolios.
- Wells Fargo Securities
  If our assessment is right – i.e., much of the juice has been squeezed from the capital markets – stock returns will be more modest with higher volatility and by definition stocks have a less attractive risk/reward.