2020 outlook: what to watch for in the investment market


David Joy, Chief Market Strategist, Ameriprise Financial

Key Points

  • Slowing economic and profit growth, low bond yields, and the 2020 election could cloud the investment outlook and cause choppy markets at times.
  • A prudent defense is to maintain a balanced, diversified portfolio with a solid asset allocation strategy to help weather all market conditions.
  • Regularly revisit your portfolio with your Ameriprise financial advisor.

 

As you anticipate the investment market in the coming year, three high-level, unresolved concerns could pose risks to asset prices. This is an opportune time for a portfolio check-up with your financial advisor to make sure you are prepared for what may unfold.

What to watch for

  • Slowing economic and profit growth. A top concern is increasing evidence of moderating economic activity worldwide. Uncertain trade policy and unfavorable demographic trends are combining to slow growth in many countries, with negative implications for corporate earnings. Even in the U.S, where the economy remains comparatively healthy, corporate profit growth has stalled. And yet, global equity markets have remained relatively buoyant as investors have focused on supportive monetary policies and have anticipated progress with trade frictions, whether justified or not. Nevertheless, disappointing earnings growth could prove to be a liability in the year ahead.
  • The reach for yield in fixed income. The prevailing combination of easy money and low inflation has pushed bond yields to historic lows. This has prompted a so-called “reach for yield” as investors stretch to compensate for reduced income by investing in lower quality, less liquid instruments. When economic activity is robust and corporate balance sheets are strong, this strategy comes with relatively little risk. But as growth slows, as it’s doing now, the reduced credit protection from lower-quality bonds increasingly exposes investors to potential losses — especially if investors head for the exits at the same time.
  • The 2020 U.S. presidential election. The domestic political calendar is a potential source of heightened market volatility in the year ahead. In the long-run, economic fundamentals are far more important for the direction of markets than are political developments, but the 2020 election year could prove to be particularly divisive as President Trump confronts an impeachment inquiry and Democrats debate an increasingly progressive policy agenda.

How to navigate

These factors could at times pressure asset prices and cause more periods of market volatility throughout the year. Given the uncertain investment environment, be sure to:

  • Maintain proper diversification and appropriate risk positioning, as these are sound defenses against short-term market movements.
  • Continue your awareness and understanding of influences that could result in higher market volatility. This enables you to make informed, dispassionate decisions about your long-term investments and remain focused on your financial goals.
  • Speak to your Ameriprise financial advisor to make sure your portfolio is constructed to help withstand all market conditions.

 Ameriprise perspectives
 
 

Market volatility is a natural, ongoing characteristic of investment markets. Your Ameriprise financial advisor can help you maintain a balanced, diversified portfolio with a solid asset allocation strategy. (0:57)