2020 Market Outlook: A ‘Goldilocks’ Scenario For Investors

By Susan Rupe

Transamerica’s chief investment officer sees the 2020 market environment as investor-friendly, or what he calls a “Goldilocks” scenario: an economic and market backdrop not too hot or too cold, but just enough for stock and bond investors to generate good returns in the year ahead.

Record stock market highs at the close of 2019 had many fearing that a recession is on the horizon for 2020, but the Transamerica 2020 Market Outlook takes an optimistic view.

“A growing economy with lower interest rates and benign inflation, rising corporate earnings growth, reasonable stock valuations, and solid fundamentals in the credit markets. Perhaps none of these in and of itself is a game changer, but in aggregate they are a good mix for those with fully invested portfolios and those with cash on the sidelines. Enough to stay in the game and enough to stoke a little fear of missing out,” the report reads.

Tom Wald, chief investment officer for Transamerica Asset Management, told InsuranceNewsNet that the positive market environment “starts with economic growth in the 2%-2.5% range.”

“It’s enough growth that the markets are not worried about recession,” he said, “but not so much growth that the markets are worried about inflation.”

With the Federal Reserve cutting interest rates three times in 2019, combined with rising corporate earnings growth, “we do not see a recession in the imminent future,” Wald said.

The Transamerica outlook predicts the 2020 market environment “will be investor-friendly.”

A number of factors are coming together this year to drive markets higher, the report said. Those factors include record unemployment lows, rising wages, low interest rates and rising corporate earnings growth. But some uncertainties exist, including the upcoming November elections, geopolitical events and the follow-through on the recent U.S.-China trade agreements.

Consumer confidence also is high, Wald told InsuranceNewsNet.

“Consumers take a lot of things into account when they decide to spend money, including their income situation and how they feel about their job security and potential wage growth. The fact that the consumers are confident and that they're showing it in terms of action and spending is a pretty favorable sign for the market.”

Other Highlights

Some other highlights of the Transamerica report include:

- Even though U.S. stocks recently achieved record highs, they are still well positioned for the year ahead. Factors contributing to this include positive economic growth, non-threatening inflation, low interest rates and rising corporate earnings growth. Valuations are reasonable, and after considering them with recent Fed rate cuts, Wald believes stocks could provide double-digit returns with potential upside from improving U.S.-China trade relations. Analysts view a realistic one-year target on the S&P 500 to be 3,600.

- High-yield and investment-grade bond investors are likely to experience coupon-type total returns in the year ahead as fundamentals continue to appear solid, although credit spreads remain close to multi-year lows.

- Opportunities in international equities are looking stronger as both developed and emerging markets are positioned for a relative rebound versus U.S. stocks in 2020. This is based on bottoming global growth rates, more accommodative monetary policy from central banks, improving U.S.-China trade relations, better clarity on Brexit, and renewed earnings momentum of emerging market stocks.

- The upcoming presidential election will likely be more hostile and contentious than any in recent memory and could potentially impact the markets.

What should advisors tell their clients about the markets for 2020? Wald had an answer.

“The most important thing is that we’re coming off a time of low volatility,” he said. “It probably means that we're going to get more volatility this year. There could be market reactions to the downside for any short period of time that might be higher than what we've seen over the past year.

“I think investors should just brace for that, and recognize that as a market opportunity. I would urge investors not to be intimidated by that and recognize there could be opportunity going forward.”

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.