While past performance does not guarantee how a stock will perform in the future, many of the fundamentals that led to a healthy stock market in 2019 remain in place for 2020.
Consumer spending, job growth, increased borrowing, decreasing trade tensions and corporate spending/investment are all fueling optimism about stocks this year.
Last Year Was Great for Stocks
Last year, the S&P 500 returned 28 percent, NASDAQ returned 35 percent and the Dow Joens returned 22 percent.
Predictions for the indexes in 2020 remain bullish with forecasts varying, but with no recession expected in the near-term, returns are expected to largely resemble those of the last couple years.
How Trade Is Helping
The recent “Phase One” trade deal between the United States and China, along with the revised trade agreement between the U.S., Mexico and Canada (USMCA), relieved pressure on the markets.
Revised policy by the Federal Reserve to cuts rates if needed, after raising them three times in 2019, reassured investors and financial markets. This means there’s confidence that the market can sustain economic expansion and respond if the U.S. economy shows signs of weakness.
Increased manufacturing, forecasted improvement in the global economy and modest wage growth are also fueling optimism.
“Nothing about this expansion is unsustainable,” said Federal Reserve Chairman Jerome Powell during Congressional testimony on Feb. 11.
“The current stance of monetary policy will likely remain appropriate. If developments emerge that cause a material reassessment of our outlook, we would respond accordingly.”
This widespread optimism is expected to bring more money into the market with new money coming in for stock trading. We saw this in early February with the Tesla stock frenzy that saw a rapid increase in its stock price.
What to Watch for in 2020
There have been substantial gains in the market during the last few years, so figuring out the best investments for you will be more difficult and take more patience.
Cyclical downturns and occasional selloffs will provide buying opportunities for otherwise healthy companies. Sectors such as technology, health care and consumer goods should provide good returns again. Energy remains a sluggish industry, but could provide a buying opportunity once it begins showing signs of life.
Despite widespread optimism, volatility is likely as we get closer to the presidential election in November. The election outcome will also influence how markets finish out the year and set the tone heading into 2021.
Additional market pressures will come from concerns about the coronavirus, rising student debt and increased budget deficit. However, the overall expectations for the stock market in 2020 remain positive. It’s looking to be another happy year of gains for investors.