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2020 Investment Outlook: The Reason and the Rhyme


By CEO Scott Colyer & Chief Investment Strategist Matt Lloyd

2019 saw some significant events that reinforced the trend in place since 2009 and increased anxiety that the end is near yet confirmed the market’s ability to climb a wall of worry. Here’s a look at several of those key events:

  • The Federal Reserve (Fed) pivoted from hawkish in 2018 to dovish in 2019. The Federal Open Market Committee (FOMC) cut the Fed Funds Rate by 75 basis points (bps) with potentially another one in the cards.
  • The 10- and 2-year yield curves inverted for roughly 40 days in August through October, which amplified the recessionary calls.
  • Earnings per share (EPS) in the United States went from historically above-average gains to negative year-over-year in the third quarter.
  • After a record high number of asset and debt classes generated a negative total return in 2018 (since 1901), the global markets are on pace to record a historic low number of asset classes with negative total returns in 2019.
  • Globally, central banks experienced a significant decline in growth pressures and were extremely dovish. Over 40 global central banks were in easing mode with cumulative cuts of over 2,000% and an average cut of 50 bps.
  • For a period in 2019, the Federal Funds Rate was the highest in the Developed Markets since the 1980s when inflation was over 14% and the yield on the U.S. 10-year Treasury was just below 16%.
  • The labor market continued to tighten, in some cases, to levels not seen in five decades. Job openings exceeded the number of unemployed, and we saw reasonable wage gains along the way.
  • Households displayed relative “frugality” in both the balance sheet and debt components typically seen in the late stages of a cycle. This may trigger several fiscal pragmatics, but we will explain further.
  • Trade tensions escalated throughout the year. The headline hokey pokey only affirmed for investors the lesson learned from the boy who cried wolf.
  • Constipated legislation was the dominant component from the Washington political scene. This has been a continuation and didn’t catch the market with undue expectations. After a significant drop, the regulatory scene saw a 15% increase as evidenced by the Total Pages of the Federal Register (not the cleanest measure, but a measure nonetheless). Impeachment, whistle blowers, and the continued high school drama class didn’t derail the markets or investors’ long-term optimism.
  • Stock buybacks are on pace to be $760 billion, second only to 2018’s record $922 billion.

 

To continue reading the 2020 Investment Outlook, click HERE.

 

CRN: 2019-1210-7861R


This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit www.aamlive.com.

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