2020 Predictions

Happy New Year Everyone and I hope heads are not too sore today after the celebrations last night.


Anyway, to celebrate the start of a new year (and decade) I have decided to post a list of my predictions for 2020.

The 2020 Presidential Election:
Without doubt, this will start to move markets before long. In my opinion, barring any major change in the US economy and assuming that the Phase 1 trade deal is implemented and tariffs drop, Trump will be re-elected.
It seems likely that the UK election result will serve as a precursor for the US election and maybe Trump will do even better than expected. For the Democratic Primary, I am going to go against consensus and suggest that Biden will not get the primary nomination. I would like to see Mike Bloomberg win, but that still seems highly unlikely. I'm therefore making a totally wild prediction that Mayor Pete will receive the nomination - he is far younger than many of his competitors, and even if he does not receive the nomination, it would not be surprising to see him on the ticket of another candidate.


Brexit:
Well, clearly the UK will be leaving the EU on the 31st of January. In terms of my expectations for when the transition period will end, I imagine it will be extended far beyond the current 2020 deadline. Boris may pretend to be a tough negotiator, but I do not believe it is possible to negotiate a comprehensive trade deal with the EU in such a short space of time.

On the back of this view, I am anticipating a strong appreciation of the pound over the next 6-12 months. Probably up towards $1.40 again, but then I imagine there will also be weaker periods as Boris ups his rhetoric against the European Union.


The Fed:
I have a slightly different opinion about the Fed than is currently consensus. Whilst I believe they will remain on hold through 2020, I do not believe that any further easing will occur (apart from to calm money markets). Similarly, I would not be surprised to see a global modest uptick in inflation - significant enough to prompt the Fed to alter their base case on the economy. As such, I believe the case can still be made for further dollar strength.

The ECB:
To me, the negative rate experiment appears to be over. It now seems likely that the ECB will increasingly consider hiking rates to attempt to normalise them. In addition, the governments of Europe (especially Germany) appear to be more interested in fiscal stimulus. This will aid monetary policy decisions and likely lead to a modest increase in inflation towards the ECB target.

My next point is that I believe the ECB target will change. Currently, the target is below but close to 2%. I believe this will become more symmetric and the ECB will allow for an inflation overshoot.

All of this signals that the Euro is likely to become stronger going forward. We have already seen a rise in the value of EURUSD from around 1.09 to 1.12. I expect a push onwards toward 1.15 in the next 6 months.



S&P500: 
It seems likely given the partial trade war resolution that corporate profits could surprise to the upside. This would all add fuel to the fire for the S&P in the coming months. However, I do want to stress that this earnings season will all revolve around "showing the market the money". If earnings disappoint, then we could see a 10-15% fall in the S&P.
I personally agree with the Bank of America S&P target of 3333 by 3/3/2020. This seems highly achievable.

Yes, the market is exuberant, and therefore any earnings disappointments are likely to see marked moves to the downside.

My end of year S&P target however (assuming much of the above is true) is 3250. In other words, exactly where we are now.


Anyway, here's to a profitable and successful new year.