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Market predictions: will 2020 bring riches or a recession?

By Connor Freitas

Brexit, a presidential election and a trade war between two economic superpowers are resulting in wildly different market predictions for 2020

As 2019 comes to an end, bringing the decade draws to a close with it, all eyes are on market predictions for 2020 and beyond. It’s set to be a year full of drama as the US holds a presidential election and the UK continues to grapple with its messy departure from the European Union.

Perhaps the best place to start with 2020 market predictions is Goldman Sachs, which recently released its economic forecast for the S&P 500 – an index that’s often seen as a benchmark of overall financial health. The investment bank has set a target of 3,400 for the end of next year, which is about 10 per cent higher than the expected figure for the end of 2019.

It is believed that lower interest rates, set by the US Federal Reserve, will continue for the foreseeable future, helping the markets to remain in bullish territory. Looking at GDP, analysts believe that America’s growth will be slightly above the trend.

When it comes to the stock market forecast, earnings per share for companies in the S&P 500 could rise by almost 10 per cent in 2020, some analysts believe. Goldman Sachs is somewhat bucking the trend here, and believes that the truer EPS figure will be closer to 6 per cent next year. Such growth figures can be difficult to predict, and it is common for overly optimistic predictions to be cut as the year progresses. Indeed, looking back at 2019, Goldman Sachs had been predicting EPS growth of between 3 and 6 per cent — and companies in the S&P 500 are set to finish the year at the lower end of this range.

Economic forecast: Will there be a recession in 2020?

Of course, the accuracy of market predictions hinges upon whether or not the economy is faced with a recession. At times in 2019 the drumbeat of a downturn appeared to be growing louder and louder. In September a closely watched survey concerning the UK’s dominant service sector suggested that the country was slipping into recession. Meanwhile, stateside, alarm bells were raised in the summer when the two-year and 10-year Treasury yield curve inverted — a milestone that has preceded every recession for 45 years. This inversion has since been reversed, allowing some on Wall Street to breathe a sigh of relief, but the economy isn’t out of the woods yet.

The US-China trade war has had a noticeable impact on global growth in 2019, according to the International Monetary Fund. Although talks are ongoing to try and break the deadlock, with an interim deal appearing to result in some tariffs being reversed, IMF economists have warned that they need further details before they can contemplate revising forecasts for 2020.

On the question of whether there will be a global recession next year, the economic forecast very much depends on who you ask. In September 2019, the UN’s trade and development agency, UNCTAD, said such a scenario is a “clear and present danger” – and urged central banks to stop obsessing with stock market performance and instead to focus on creating jobs. In June, a survey of 53 analysts conducted by the National Association of Business Economics also made for gloomy reading. While only 15 per cent of those polled believed a recession would hit by the end of 2019, 60 per cent feared that one would arrive by the end of 2020.

Some, like Goldman Sachs, believe that a recession – at least in the US – is not likely in the short-term future. Others, such as Credit Suisse, are more circumspect, telling investors that it might be more appropriate to say that a “semi-recession” is on the horizon.

While some indicators in the US economy are a cause for concern, such as disappointing manufacturing data, the resilient levels of consumer spending and the lowest level of unemployment for 50 years mean that it isn’t a gloomy picture across the board.

As things stand it’s fair to say that economic forecasts are being downgraded. The Organisation for Economic Cooperation and Development has said the US-China trade war is set to dent global GDP by 0.3 to 0.4 percentage points in 2020, and by 0.2 to 0.3 percentage points in 2021, with the US and China suffering the most. Overall, global growth is set to slow down to just 3 per cent next year, and the OECD’s chief economist believes that “a long period of low growth” may lie ahead. With complications and geopolitical drama around every corner, 2020 looks set to be a wild ride for investors.

FURTHER READING: Gold price predictions for 2020 and beyond

FURTHER READING: Global trade slowdown: have we reached the bottom yet?

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