Market Outlook for the first half of 2020

January 1

 

A look ahead to the first half of 2020

Just an early disclosure. This report is for clients, but in the past, it has been shared with non-clients. So while I don’t mind, I have decided to use language that is geared to both clients and non-clients.

I have also decreased the size of this report from 5 pages to more manageable 2-3 pages.

In a few hours, 2019 will be in the books and the stock market finished the year with a strong performance. Considering how 2018 ended and the ups and downs of 2019, investors were happy to finish the year in positive territory.

The performance of the three key indexes I follow for the year was up 24%, 29%, and 35% (Russell 2000, S&P 500, and The Nasdaq respectively). As in any year, these benchmarks were a good gauge to measure the breadth and strength of the overall market.

While these returns were good there were other investments that surpassed those returns. As in previous years, not all investments were equal. There were mutual funds that were up over 50% and individual stocks that were up over 150%.

However, to answer the question each client has, is the gas tank empty? The answer is no.

The first half of 2020 is showing signs that the upward trend will continue.

Some important events in the first few months will help shape the year. President Trump will sign the first stage of the China/U.S Tariff on January 15th, the impeachment trial in the Senate, and President Trump’s State of the Union. These three events should paint a positive future for the market in the first half of 2020.

There are some other key events scheduled, but how the market responds won’t be known until they occur. They include the Democratic candidate for President, Phase II of the China/U.S trade talks, North Korea, global markets recovery, and uncertainty in the Middle East.

The Federal Reserve should continue to be a muted factor unless they decide to lower rates one or two times in 2020.

I have heard from investors the market is expensive and I have also heard these concerns discussed on various cable outlets. However, other analysts have expressed thoughts that the stock market has the right conditions to have another good year. While I can’t say we will not have another good year, the possibility does exist.

The S&P 500 had 20% returns or better each year from 1995-1999 and the Nasdaq has had greater than 16% returns each year from 2012-2104.

So I am going to discount this type of thinking based on just high prices, I like to remind many that those were some of the same thoughts I heard early in 2017 and some investors missed out on the strong gains of that year. Stock prices are always a relative factor but not the sole factor in the evaluation of any investments.

Looking at current global conditions, quantitative data on consumers, and general research on our markets, I believe most investments will perform positively in 2020. There are sectors that should do better than others and I would view Large Cap Growth, Technology, Communications, Healthcare, and Europe as those sectors.

Not every mutual fund or stock in these areas is equal so due diligence and research will be necessary. For example, AMD was up 150% this year, Nvidia was up about 80% but their competitor Intel was up only 31%. Mutual funds that held the first two in their top holdings may have seen better returns than funds that held Intel.

This is not an endorsement to run out buy either stock but is just another example of why it pays to do your research.

This is a key reason that diversity is important in any portfolio. Over the past two years, we have built up positions in client accounts in Nvidia, Square, Netflix, AMD, Verizon, Bausch Health, and American Water Works to name a few. These stocks should continue to perform well moving forward but I do see a need to add to some client's portfolios.

Over the past several months, I have been researching different sectors and individual investment positions. I have spoken to some of you about these recommendations and where it is appropriate, we have recently started adding new positions to client accounts. Those positions represent communications, home builders, aerospace, industrial conglomerates, and consumer discretionary.

Keeping the larger picture in focus, I do expect some type of short correction of 15% -20% to occur since no market goes only in one direction. The reasoning is fixed-income investors lack any real choices outside of the equity market for yield and return.

As long as interest rates continue to remain at these current levels and the possibility exists that they could go lower, the stock market has little competition.

Mergers/Acquisitions (M/A) will maintain their current pace, I believe there will be a surprise or two on the acquisition side in 2020. In some portfolios, there has been news on one or two positions that potentially could fall into this category.

Unless the fundamentals of the IPO market change, IPOs in 2020 could face the same dismal returns as those in 2019.

Precious metals like Gold, Silver, and Platinum finished 2019 on solid returns but lagged the broader indexes. Based on current global currencies, lack of global crises, and stability in oil, I believe metals will be in the same range or possibly lower.

For those who are not clients, I recommend speaking to a financial advisor and creating a financial blueprint for your program. If you're considering a retirement package from your employer, interview at least two advisors before making a final decision.

Understand how your advisor is compensated. Are they a commissionable agent that only has access to one or two financial products and are receiving a 5% or 6% commission or are they a Registered Investment Advisor who gets an advisory fee over a period of time to work with a client on an ongoing basis.

I wish everyone a good journey in 2020 and with some discipline, education, and patience, I hope your investments help you reach your personal financial goals.

Disclaimer:

These are the views of Aurora Strategic Advisors, (ASA) and should not be construed as investment advice. This material is not intended to be relied on as a forecast, research or investment advice, and not a recommendation, offer or solicitation to buy, or sell any securities or investment strategy.

This report is based on a professional look ahead at the markets for our clients who have met with an investment advisor representative at our firm and had their particular investment needs and concerns analyzed.

ASA does not provide or give tax or legal advice.
Please consult with your financial advisor for further information.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.