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Investment outlook

Bob Doll's 10 Predictions for 2020: Uncertainties diminish, but markets struggle

Robert (Bob) C. Doll
Senior Portfolio Manager & Chief Equity Strategist
Ten predictions - large 10 over blue background


  • The year in review: 2019 was a banner year for stocks, as macro risks receded.
  • Scorecard: Our scorecard shows our predictions were more correct than incorrect last year.
  • By the numbers: The year came to a close with markets near record highs.
  • Outlook: We think economic growth can pick up modestly, but market returns may be tough to come by.
  • 10 Predictions: Our new list of what we expect will happen over the next 12 months.
  • Key themes for investors: Investment selectivity could be more important than ever in a tougher environment.

Download the full report.

10 Predictions for 2020

Uncertainties diminish, but markets struggle

As our 2020 theme suggests, we see both positives and negatives for stocks as we head into the coming year. Some key risks look more manageable, while other fundamental factors may be working against the markets. This looks to be a year in which investment selectivity will be critical.

  1. The world avoids recession in 2020 as U.S. GDP grows over 2% and global GDP grows over 3%.
    If the U.S. economy avoids a recession in 2020, this would mean an unprecedented twelfth year of economic growth.1 We expect significant monetary easing in 2019 will translate into decent, if unspectacular, growth in 2020. We still see several risks, including a rise in delinquency rates on consumer loans and a drop in banks’ willingness to lend. But to us, the positives outweigh the negatives.
  2. Inflation and the 10-year U.S. Treasury yield end the year above 2% as the Fed stays on hold through the election.
    Low inflation has helped prolong the current cycle, and the Fed would actually like to see inflation move higher. This prediction is based on assumptions that 2019 monetary stimulus will raise both real growth and inflation measures to some degree. Several factors point to modestly higher inflation and interest rates: wage pressures, rising inflationary expectations, an uptick in manufacturing, the easing of the trade war and fiscal stimulus from multiple countries.
  3. Earnings fall short of expectations, partially due to rising wage rates.
    2018 earnings exceeded expectations, due to both the benefits of the 2017 tax cuts and increasing profit margins. In 2019, in contrast, earnings faded due to mediocre top-line growth and disappointing profit margins. We expect negative earnings revision activity to persist in 2020, as profit margins disappoint and wage pressures rise. Current consensus earnings growth for next year ranges from 9% to 10%.2 Our forecast is for something closer to 5% to 6%.
  4. Stocks, bonds and cash all return less than 5% for only the fourth time in 25 years.
    Prediction #3 points to our cautious view on earnings. We also observe that stocks are not particularly cheap at this point, as prices rose considerably in 2019. At the same time, interest rates may rise modestly from low levels, which could cause bonds and cash to struggle. Should this all play out, all three asset classes could return less than 5%, as happened in 2005, 2015 and 2018. Needless to say, this prediction perhaps puts us furthest out on a limb.
  5. Non-U.S. stocks outpace U.S. stocks as the dollar retreats.
    The U.S. economy recovered more quickly post the Great Recession and also grew faster and longer, helping U.S. stocks beat non-U.S. markets for most of the past decade. Nevertheless, some reacceleration of non-U.S. growth and a weaker U.S. dollar – coupled with more attractive non-U.S. equity market valuations – lead us to believe that the U.S. markets will finally lag in 2020.
  6. Value and cyclicals outperform growth and defensive stocks.
    Style questions are a topic of hot debate across our equity platform at Nuveen. We feel cyclical areas of the market (such as financials) look poised for outperformance. We also think the emerging trend of value beating growth could continue long enough for value to win over the course of the year, especially since growth and defensive areas look relatively less attractive from a valuation standpoint than earlier in the cycle.
  7. Financials, technology and health care outperform utilities, real estate and consumer discretionary.
    Financial stocks remain inexpensive with improving fundamental prospects. The information technology sector should benefit from an improving global economy, a weakening dollar and new product and service cycles. The health care sector will likely gyrate with the latest political polls, but should benefit from unit growth, some pricing power and generally undemanding valuations. The other three sectors appear expensive and could experience earnings pressures.
  8. Active equity managers outperform their indexes for the first time in a decade.
    In our experience, active managers generally have a tailwind when small stocks beat big stocks, non-U.S. stocks outperform, equity returns are relatively low, value beats growth, correlations are low, economic growth improves and interest rates rise. We expect most of those conditions to favor active over passive in 2020.
  9. The cold wars within the U.S. and between the U.S. and China continue.
    The world’s problems are immense and seem to be growing. Even with a phase-one trade deal, the emerging cold war between the U.S. and China undoubtedly has many more chapters to go economically and diplomatically (but hopefully not militarily). In the U.S., the have/have not gap continues to grow and the political backdrop appears to be more contentious than ever, a situation unlikely to improve during an election year.
  10. The U.S. concludes a tumultuous political year with a status quo election.
    Predicting that the Republicans would win the presidency in 2016 was certainly one of our minority views at the time, and our best guess at this juncture is that President Trump will win reelection thanks largely to a good economy. We also expect the status quo in Congress, with Democrats likely gaining a couple of seats in the Senate and Republicans regaining a handful of seats in the House.

Stocks as a whole may struggle. But we are still finding compelling investment ideas.

Watch Bob Doll, Chief Equity Strategist, discuss his latest 10 Predictions for 2020
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1 Bureau of Economic Analysis
2 Bloomberg, FactSet and Morningstar Direct

The S&P 500® Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy. The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The Nasdaq Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market. The Russell 2000® Index measures the performance of approximately 2,000 small cap companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. Euro Stoxx 50 is an index of 50 of the largest and most liquid stocks of companies in the eurozone. FTSE 100 Index is a capitalization-weighted index of the 100 most highly capitalized companies traded on the London Stock Exchange. Deutsche Borse AG German Stock Index (DAX Index) is a total return index of 30 selected German blue chip stocks traded on the Frankfurt Stock Exchange. Nikkei 225 Index is a price-weighted average of 225 top-rated Japanese companies listed in the First Section of the Tokyo Stock Exchange. Hong Kong Hang Seng Index is a free-float capitalization-weighted index of a selection of companies from the Stock Exchange of Hong Kong. Shanghai Stock Exchange Composite is a capitalization-weighted index that tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange. The MSCI World Index ex-U.S. is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed markets minus the United States. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. Bloomberg Barclays U.S. Aggregate Bond Index covers the U.S. investment grade fixed rate bond market. The BofA Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged market index of U.S. Treasury securities maturing in 90 days that assumes reinvestment of all income.

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The views and opinions expressed are for informational and educational purposes only as of the date of writing and may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The information provided does not take into account the specific objectives, financial situation, or particular needs of any specific person. All investments carry a certain degree of risk and there is no assurance that an investment will provide positive performance over any period of time. Equity investments are subject to market risk or the risk that stocks will decline in response to such factors as adverse company news or industry developments or a general economic decline. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, tax risk, political and economic risk, and income risk. As interest rates rise, bond prices fall. Foreign investing involves additional risks, including currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. These risks are magnified in emerging markets. An alternative strategy sells securities that it has borrowed but does not own (“short sales”), which is a speculative technique. A strategy will suffer a loss when the price of a security that it holds long decreases or the price of a security that it has sold short increases. Losses on short sales arise from increases in the value of the security sold short, and therefore are theoretically unlimited. Because a strategy invests in both long and short equity positions, the strategy has overall exposure to changes in value of equity securities that is far greater than its net asset value. This may magnify gains and losses and increase the volatility of returns. In addition, the use of short sales will increase expenses. Diversification does not assure a profit or protect against a loss. As an asset class, real assets are less developed, more illiquid, and less transparent compared to traditional asset classes. Investments will be subject to risks generally associated with the ownership of real estate-related assets and foreign investing, including changes in economic conditions, currency values, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties. Alternative investments may be illiquid, there may be no liquid secondary market or ready purchasers for such securities, they may not be required to provide periodic pricing or valuation information to investors, there may be delays in distributing tax information to investors, they are not subject to the same regulatory requirements as other types of pooled investment vehicles, and they may be subject to high fees and expenses, which will reduce profits. Alternative investments are not suitable for all investors and should not constitute an entire investment program. Investors may lose all or substantially all of the capital invested. The historical returns achieved by alternative asset vehicles is not a prediction of future performance or a guarantee of future results, and there can be no assurance that comparable returns will be achieved by any strategy. Past performance is no guarantee of future results.

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