Dear Friends,
Happy New Year. I take this opportunity to send you my best wishes: good health, tons of work and success!
2019 ended up being an exceptional year where we saw new historical records in the stock market indices. A year hard to repeat, but more than welcome. In broad strokes, the perception of a global recession dissipated, the China-US Tariff War was maintained in the freezer during the last semester, and the global economy showed its ability to keep growing, especially that of the United States.
2020 begins and many have asked, which are our expectations for this new year? A difficult question given how complex it is to predict scenarios, but, based on the opinions of specialists, economists and financial institutions, the general consensus agrees on a positive year, although in moderation, compared to last year. This consensus suggests returns that can be around 8 to 10%, in large part, due to:
Stable Economies - 2019 allowed the main economies to stabilize and especially that of the United States, showing a growing economy, dissipating recession symptoms, maintaining a solid labor market, rising productivity and a population with an appetite for consumption. In practical terms, the US economy improved and is expected to continue during 2020. For the rest of the world, a de-escalation between the US and China from its tariff war and a low interest rate monetary policy by the world's central banks, should benefit global growth.
U.S. presidential elections – The fact that it is an election year should allow a de-escalation between China and the US. of its tariff war, this in part to ensure Donald Trump re-election in November. Speculating, I imagine President Trump saying that the "best trade deal" between China and the US was achieved, even if it really means removing the imposed fees. Will have to wait until November but the surprise would be President Trump’s no reelection.
Companies Fundamentals - Given the aforementioned factors, analysts expect company profits to grow 4.6% in the first quarter compared to the same period last year and 6.4% in the second quarter, according to FactSet. And although it is still early, estimates suggest that S&P500 earnings could grow by 9.4%.
Forward looking, the most important thing to all investors this year will be the selection criteria to invest. Given the historical highs and high prices in all investment instruments, the selection of investment instruments can have a great impact on the future of portfolios. The search for quality must be relevant. Solid economic sectors, healthy companies, with good cash flow, with capacity to grow and good management.
Finally, although the expectations of 2020 are encouraging, it is important to remember that last year on this same date we were talking about a potential recession. Macroeconomic indicators suggested a change around the corner, the Federal Reserve planned to raise the interest rate at least 3 times in the year, and, it ended up being the opposite. All these risks remain valid today.
As investor John Templeton said, "Bull markets are born of pessimism, grow from skepticism, mature from optimism and die of euphoria."
Today the market is optimistic.
In case you want to contact me, write to eduardo.lucca@mellig.us or to my phone +1 (305) 746.9890.