Start of 2020 Year
Economic Update Looking Forward
and 2019 in Review
Staying balanced in your portfolio this election year.
Patience is important in election years. If you look at every election since 1932 you would find that primary seasons are volatile, but markets have notched solid gains afterward. Stay invested rather than sit on the sidelines.
Recession in 2020? Not if the consumer stays this strong. In the U.S., it’s a tale of two economies: Consumer strength should continue to offset the manufacturing slowdown caused by trade and policy uncertainty.
Your equity portfolio.
Be sure you are prepared for rougher seas ahead as we face headwinds from an election year, a slowing global economy and late-cycle markets.
We look to select companies that can sustain dividends when times get tough.
Think all the best stocks are in the U.S.? Think again. Over the last decade, most of the top 50 stocks were non-U.S., even though the U.S. index did better overall. It’s about selecting companies, not indexes.
Fixed income your bond portfolio.
Have you revisited our bond allocation? Given the late-cycle U.S. economy and weakness abroad, your fixed income allocation should be mostly Core bonds that can help mitigate stock market volatility.
Patient investors can do well in election years
It’s worth reminding ourselves that election results, historically speaking, have made essentially no difference when it comes to long-term investment returns.
What has mattered is staying invested. Looking at election results back to 1932, U.S. stocks have trended up regardless of whether a Republican or Democrat won the White House. Investors who held on for at least a year were rewarded for their patience, though they had to withstand heightened volatility during the primaries. – Emotional
“Investing during an election year can be tough on your nerves,” explains Capital Group – American Funds portfolio manager Greg Johnson, “but it’s mostly noise and the markets carry on. Long-term equity returns are determined by the value of individual companies over time.”
Policy and trade uncertainty drive global slowdown
Global economic growth is slowing, and there’s no shortage of reasons why: U.S.-China trade war, political turmoil in Europe, violent protests in Hong Kong. The list goes on, creating a spike of uncertainty. However, there are equal and opposite reasons to be cautiously optimistic about the outlook for 2020.
Mexico and Canada trade deals, powerful catalysts for change include the U.S.-China trade deal (even a limited one); a likely Brexit resolution in the U.K.; and an eventual return to normal levels of manufacturing activity as companies begin to invest again in a less uncertain world.
Our Federal Reserve commitment to holding interest rates low in 2020 means that although the market won’t always be rosy, it’s unlikely we’ll see a recession this year.
Trying to predict the timing of a recession is a fool’s errand.
It’s important that your portfolio is well-balanced and positioned for downturns.
We are not excluding international in our portfolios, but we are picky. There are roughly three times as many investable foreign stocks as domestic. We don’t want to limit to a quarter of the available pool when there are great companies located throughout the world?
For many investors their lackluster returns in international is tied to what they are investing in. International indexes don’t tell the whole story.
International indexes generally have a greater concentration of value-oriented stocks in “old economy” sectors such as materials, financials and energy. Contrast that with the U.S., where technology and health care dominate.
While the growth forecast is a little less than 2% for the U.S. over the next 10 years. The consumer is solid. They have paid down debt and are saving for future expenses, retirement, college and house purchases
We need more participation in our workforce. This is an economic drag.
In a slow growth economy like we have had in this century. It’s important to have reasonable expectations for your portfolio. The average 60% stocks/40% bonds portfolio in the past 20 years has earned a little over 5%. So, while we celebrate the rich gains from 2019, we need to be realistic in our expectations.
That an average year returns will be more along the lines of 5%. Patience is going to be key this year!!
Call if you have questions or would like to discuss this topic more.
Securities offered through Kestra Investment Services, LLC, (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC, (Kestra AS), an affiliate of Kestra IS. Financial planning offered through Personal Benefit Financial. Rountree & Associates doing business under Personal Benefit Financial is not affiliated with Kestra IS or Kestra AS. Before rolling assets over from a qualified plan, you should consider various factors. These factors include but are not limited to the following: Investment Choices, Fees and Expenses, Services provided by the new options, Penalty-Free withdrawals, Required Minimum Distributions, and Tax considerations. Speak to a tax professional about your individual situation before taking any action.