Is the bull-run in stocks out of breath?

American equities soared beyond expectations this year. Yet after a year of outsize returns, most expect a far more modest showing in 2020.

979-Trump-634
The US presidential election: heated rhetoric could create more market chaos

Stocks soared beyond expectations this year, writes Akane Otani in The Wall Street Journal, and few analysts "believe the longest-ever bull market is on its last legs". American equities have been in an upswing since March 2009, risingmore than 370% over the past decade. Wall Street sets the tone for global markets, with both the S&P 500 and MSCI All-World indices hitting all-time highs this month. Yet after a year of outsize returns, most expect a "far more modest" showing next year.

The US earnings cycle turns down

High valuations in America mean that further upside is likely to be limited, agrees Andrew Sheets in Morgan Stanley's 2020 Global Strategy Outlook. Global growth probably bottomed out this quarter and should pick up next year. Yet "valuations are much more expensive today than in a typical mid-cycle slowdown" and an unpredictable trade outlook means that the recovery still "rests on a knife-edge". Investors will require an "outsized level of nimbleness" if they are to enjoy a prosperous 2020.

Not everyone is so gloomy, say Matthew Rocco and Jennifer Ablan in the Financial Times. On average analysts expect a 10% bump in S&P 500 earnings per share next year. Eight major banks are forecasting an average 4.6% S&P 500 gain for 2020. Yet that relatively modest forecast still reflects a view that this year's strong returns "may have stolen the market's thunder for 2020".

Two wild cards

The trade war is likely to move into a new phase next year, says Neil Shearing for Capital Economics. Trump has agreed to scale back tariffs on Beijing in return for higher purchases of US agricultural products, which "has raised hopes of a lasting breakthrough". The conflict is likely to move away from tariffs towards issues such as "technology, industrial policy and security" in 2020. US-China decoupling will thus continue, but in a way that is less disruptive than tariff wars for the global economy.

Forecasts for the year ahead should be taken with a pinch of salt, says Otani. Forecasters have been caught off guard by everything from the 2015 oil-price collapse and the 2016 US election to this year's mammoth slide in bond yields. Expect investment banks to revise their predictions multiple times before the end of 2020.

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Why Wall Street has got the US economy wrong again
Economy

Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019
The rising dollar is proving bad news for most other assets – will it last?
Investment strategy

The rising dollar is proving bad news for most other assets – will it last?

Precious metals, stocks and pretty much every other asset has taken a tumble as the US dollar strengthens. Dominic Frisby looks at how long this trend…
23 Sep 2020

Most Popular

Oil producers are back at their Covid-19 lows – is it time to buy?
Oil

Oil producers are back at their Covid-19 lows – is it time to buy?

With demand for oil hammered by Covid-19 and talk of “peak oil demand”, there are lots of good reasons to be bearish on oil producers. So, asks John S…
22 Sep 2020
Why you should stuff your end-of-pandemic portfolio with Chinese stocks
China stockmarkets

Why you should stuff your end-of-pandemic portfolio with Chinese stocks

For an end-of-pandemic portfolio, you need assets that can cope with today’s volatility. And that, says Merryn Somerset Webb, means Chinese stocks.
14 Sep 2020
IAG's share price is ready for take-off - here's how to play it
Trading

IAG's share price is ready for take-off - here's how to play it

The owner of British Airways has had a turbulent year, but is now worth a punt. Matthew Partridge explains the best way to play it.
8 Sep 2020