The year ahead: opportunity and risk

By Russell Price, Chief Economist, Ameriprise Financial

Key Points

  • The U.S. economy is likely to follow a familiar pattern in 2020: slow growth.
  • Ongoing trade tensions and domestic politics, however, are likely to keep prospects for market volatility high.
  • We expect corporate profits to improve, but we may need to see uncertainty diminish for such gains to materialize.

In his play, The Tempest, William Shakespeare gave us the enduring quote, “What’s past is prologue.” Investors may find the quote relatable in the year ahead, as we believe economic conditions and background concerns such as trade tensions and domestic politics are likely to look quite similar to those of the past year. 

We forecast the U.S. economy to grow at a pace of +2.1% in 20201, as compared to our current estimate of +2.2% for 2019.  Both figures are close to the U.S. economy’s 10-year average pace of real GDP2 growth of +2.3%, as the U.S. Department of Commerce reports. We believe consumers will continue to be the economy’s primary source of support, as they are in sound financial condition and up to the task. 

After hitting a 50-year low of 3.5% in September, we believe the unemployment rate3 is likely to remain well below 4.0% in 2020, despite our forecast of decelerating monthly job growth. It’s simply become increasingly difficult for businesses to find available workers. This has accelerated wage and salary increases, which, if continued, could pressure corporate profit margins. Of course, stronger wage gains also put more money in the pockets of consumers to spend.

Inflation also is likely to remain well contained, in our view. We estimate the Consumer Price Index (CPI) is likely to rise at a rate of +1.8% as we exit 2019, accelerating slightly to +2.1% in 2020. We believe interest rates also are likely to rise modestly, but generally remain quite low relative to historical averages.  

The global picture

On a global basis, economic growth is likely to remain slow. In its most recent quarterly update in October, the International Monetary Fund (IMF) forecast real global growth at +3.4% for 20204, a modest acceleration from the organization’s estimate of +3.0% for 2019. According to IMF forecasters, a handful of key emerging market economies — such as India, Brazil, Russia and Mexico — are expected to experience modest rebounds in activity. Conditions can change quickly in emerging markets, however, and we currently believe the IMF global forecast could prove slightly optimistic.

What it all means for investors

Trade tensions have been a major source of market volatility over the past two years and, unfortunately, that looks likely to continue in 2020. More recently, the S&P 500® Index has seen some support from positive perceptions of U.S./China trade negotiations. Officials in Europe also seem to be making positive progress on the United Kingdom’s pending separation from the European Union (often referred to as “Brexit”). We remain cautious on these issues, in particular the U.S./China negotiations, as investor optimism has proven premature in the past.   

The 2020 U.S. presidential election also offers a heightened level of uncertainty for investors to digest. Proposals from some of today’s leading candidates imply the potential for material change for some industries. At this stage, however, it’s impossible to factor in such considerations with any degree of certainty, but polling results will very likely be notable sources of market reactions throughout the year.  

In the year ahead, the investment landscape appears to have near equal measures of risk and opportunity. Trade relations and election results will likely be the arbiters to tip the scale. Political rhetoric, while very high recently, is likely to go higher still.

As always, investors should resist the urge to let their emotions or political concerns overwhelm their long-term investment decisions. Talk with your Ameriprise financial advisor to assess your risk tolerance, construct your asset allocation and diversify your investments toward present opportunities to reach your goals.