Stock Market News: 5 Things To Watch For In Global Markets In 2020


StockMarketNews.Today1. No end in sight to the U.S.-China struggle for supremacy. The trade war between the U.S. and China, which hobbled the world economy almost single-handedly in 2019 is likely to leave deep marks on 2020 too.

The International Monetary Fund estimated in October that the tariffs imposed by both sides, and the far-reaching uncertainty they have caused, will shave $700 billion of value off the world economy next year, the equivalent of 0.8% of global gross domestic product.

The end result may be less extreme, given the apparent progress in talks earlier in December, in which China agreed in principle to raise its purchases of U.S. farm goods in return for a partial reversal of import tariffs on some goods it sells to the U.S. There is still no date for a signing ceremony, and neither side has published a draft text of the deal, but tariff cuts agreed last weekend by the Chinese government look designed to smooth the way for it being done early in January.

However, even after that, most existing tariffs will remain in place. As long as key issues such as intellectual property rights and government subsidies are addressed by China, a return to the status quo ante seems highly unlikely, while other fronts of engagement – notably Hong Kong, North Korea and Taiwan – could flare up at any time.

That’s especially true now that the Democratic Party’s presidential candidates are signalling a willingness to confront China on issues from trade to human rights and technological supremacy – showing that whoever is in the White House by the end of 2020, the trade war – in some guise – will still be going strong.

2. Election to cast a long shadow over the Fed. The U.S. Presidential election in November will cast a long shadow ahead of itself in the months running up to it – a shadow that will cover the Federal Reserve among many others.

Opinion polls and bookmakers give President Donald Trump an even chance of re-election (assuming he survives the current impeachment process), something that would pave the way for another four years in which trade and fiscal policy are the cardinal factors for market developments, with the Federal Reserve reduced to the role of cushioning any shocks – whether to the upside or downside – that those policies generate.

For now, Fed Rate Monitor Tool sees the key fed funds rate target range ending 2020 where it will start it – at 1.50%-1.75%. But that depends largely on what policy choices Trump makes between now and November.

If Trump chooses to avoid escalating the trade war, then U.S. inflation is likely to rise under the influence of a tight labor market and a $1.2 trillion budget deficit. Upward pressure on U.S. interest rates will start at the long end of the bond market, while fresh presidential browbeating via Twitter will keep U.S. short rates anchored, as the Fed hesitates to take action that may come across as politicized in an election year.

If, by contrast, Trump feels the need to energize voters with aggressive actions toward China (or indeed the EU, Mexico, Canada or elsewhere), then the Fed may have to pull out another ‘insurance’ rate cut. Fed Rate Monitor Tool sees a total of one 25 basis point cut as the second most likely outcome for 2020 at present.

3. A long time ago, in a Hollywood boardoom far, far away… Forget Star Wars – 2020 will be the year that the streaming wars are unleashed in all their fury.

The year will start with Reed Hastings’ Netflix defending a very handy first-mover advantage – it currently has just under 160 million subscribers worldwide and is very much the first name that comes to mind in the space of on-demand video streaming.

However, that position is under threat from deep-pocketed rivals, with both Apple and Walt Disney having launched rival services in November. Disney, with its unparalleled back catalogue and its dominance of live sports programming, is set to be a particularly tough competitor. CEO Bob Iger says he’s targeting 90 million subs by 2024. The first 10 million signed up on day one.

Comcast and AT&T will enter the fray next year: NBCUniversal’s Peacock offering is due for launch in April and WarnerMedia’s HBO Max is due in May. And as with so many other sectors, remains a potentially powerful and margin-crushing competitor.

The good news is that most analysts see plenty of room in the market for multiple providers. The less good news is that no-one knows exactly at what price point that room starts to shrink. Disney has had to undercut Netflix substantially to guarantee escape velocity for its service. Later launchers may find that problem even more acute.

And yet arguably none of the companies lining up to provide those content services has as much of a challenge as Roku, which specializes in smart TVs tailored for streaming platforms. After quadrupling in 2019, its shares are trading at a multiple of 15.2 times expected 2019 revenue. That might be the hardest billing of all to live up to.

4. Oil faces a new glut … The global oil market faces a difficult start to 2020, as sluggish world growth continues to ensure that supply grows faster than demand.

The agreement earlier this month by the Organization of Petroleum Exporting Countries and its partners, notably Russia, to cut supply by a further net 500,000 barrels a day from January through March has convinced traders there will be no immediate glut. Even so, the International Energy Agency says global stockpiles could grow at 700,000 barrels a day in the first quarter of the year.

“The OPEC cuts didn’t fully solve the problem,” says Bjørnar Tonhaugen, head of oil market research at Rystad Energy. “Instead they offer a light bandage to get through the first quarter of 2020.” After that, he says, fears of over-supply will surely revive.

That’s reflected in the U.S. Energy Information Administration’s prediction of an average crude price of just over $55/barrel for U.S. benchmark West Texas Intermediate next year, and $60.51/barrel for the global benchmark Brent.

Those prices mean that for many U.S. shale producers, life will stay precarious. Their bigger integrated rivals, meanwhile, face higher costs of capital as politicians and investors pressure the sector to expose more clearly the Climate Change risks embedded in its business models.

Pricing and capital costs means U.S. production growth is set to slow to 900,000 barrels a day next year, according to government forecasts. That’s down from 1.3 million b/d this year and 1.6 million b/d in 2018. For the first time in at least three years, the U.S. will not meet all incremental global demand on its own. The IEA expects world oil demand to rise by an average of 1 million barrels a day over 2020.

5. Europe’s trade troubles … The dead hand of trade uncertainty will continue to weigh on the European economy, frustrating the European Central Bank’s exit from its policy of negative interest rates, putting further pressure on the profitability of the Eurozone banking system, and keeping a cap on the euro in the foreign exchange markets.

Trade hazards are many, and ways around them are few. Higher U.S. tariffs on China have deterred business investment in both countries, hitting Eurozone exports of capital goods. The EU is also the obvious next target for any new trade offensives if the Trump administration declares a truce with China ahead of the election.

Nor is the EU likely to take recent U.S. tariffs in relation to Airbus subsidies lying down: the World Trade Organization will likely allow it next year to levy tariffs of its own on U.S. companies in return for hidden subsidies to Boeing.

Finally, there is the fate of relations between the EU and U.K., which will leave the bloc at the end of January. U.K. Prime Minister Boris Johnson has signalled he wants a trade deal by the end of 2020, when the transitional phase of his Withdrawal Agreement is set to end. That sets the stage either for some frenzied negotiating or, more likely, a trade agreement that will be done in stages, each one doing just enough to stop a disorderly disruption of trade and financial flows between the two. Even so, the threat of such a scenario will be constantly depressing confidence and demand at the margins, ensuring that Sterling, too, struggles to build on the gains of the last quarter.

Best Stock Market Sectors For 2020

StockMarketNews.Today — After another big year for the stock market and the U.S. economy in 2019, investors are looking ahead to 2020 to determine which sectors will lead the next phase of the decade-long bull market. The technology sector has once again been the top-performing sector in 2019, while energy lagged behind the field. In 2020, analysts see more room for upside ahead in select market sectors.

Top-Performing Market Sectors of 2020.  ( By Savita Subramanian )

The Financial Select Sector SPDR (XLF) exchange-traded fund gained 29.8% in 2019, and Subramanian is anticipating another big year from the sector in 2020. Subramanian says the sector is much less credit-sensitive in 2020 than it was during the financial crisis and has seemingly gotten little recognition in the market for dramatic improvements in quality and cash returns.

Despite the sector’s relatively high quality and yield, the financial sector trades at the steepest forward earnings multiple discount to the S&P 500 of any sector.

Bank of America has an “overweight” rating for the financial sector.

Even after the Industrial Select Sector SPDR ETF (XLI) gained 26.6% in 2019, Subramanian says the industrial sector trades at a recession-level earnings multiple.

She says industrials could re-rate to a higher valuation in 2020 if the economy remains strong, trade risks ease, capital expenditures ramp and the Institute of Supply Management’s Purchasing Managers Index bottoms. In addition, the climate of elevated geopolitical tensions with China, the Middle East and other regions should support the U.S. defense budget in the near term, a positive backdrop for industrials.

Bank of America has an “overweight” rating for the industrial sector.

The Technology Select Sector SPDR ETF (XLK) gained 45.3% in 2019, beating all other market sectors by more than 15%.

In a technology-driven world, Subramanian says the tech sector will once again be a solid performer in 2020. However, after such a strong run in 2019, Subramanian says its prudent for investors to dial back their exposure and keep expectations realistic in 2020. If the recent rotation to value stocks carries over into next year, she says high-flying software stocks could be hit especially hard.

Bank of America has a “market-weight” rating for the technology sector.

Communication Services
Three of the top holdings in the Communication Services SPDR ETF (XLC) are “FANG” stocks Alphabet (GOOG, GOOGL), Facebook (FB) and Netflix (NFLX).

Subramanian says the FANG group will likely continue to face regulatory scrutiny related to user data in 2020, but likely not as much as in 2019. At the same time, the 2020 U.S. election should provide a shot in the arm for both online and traditional advertising. Subramanian says the sector offers investors both yield and growth, a rare combination in today’s market.

Bank of America has a “market-weight” rating for the communication services sector.

Health Care
The health care sector is currently trading at about an 11% forward earnings multiple discount to the overall S&P 500, well below its historical 11% premium.

Subramanian says the sector has both a compelling valuation and impressive fundamentals. Unfortunately, health care stocks did not fare well during the last election season in 2015 and 2016 due to policy uncertainty. Subramanian says election-related headline risks will be elevated in 2020, but passage of disruptive policies such as Medicare for All appears to be unlikely.

Regardless, Bank of America has a “market-weight” rating for the health care sector.

After another year of underperformance in 2019, the Energy Select Sector SPDR ETF (XLE) is now down 20.1% overall over the past five years.

Fortunately, Subramanian says the extended weakness has created deep value in the space heading into 2020. In addition, she says exploration and production companies are focusing more on cash flow and shareholder returns than production growth. Stock selection within the sector is growing increasingly important given younger investors’ preference for companies with environmental, social and governance (ESG) awareness.

Bank of America has a “market-weight” rating for the energy sector.

The Utilities Select Sector SPDR ETF (XLU) gained 21.6% in 2019. Subramanian says utility stocks provide a great source of yield for investors, and the predictability of utility earnings make the sector relatively immune to macroeconomic instability.

The sector’s current dividend payout ratio is roughly in line with its historical average, suggesting payouts are sustainable but yield upside is limited. Unfortunately, the sector’s relative valuation compared to the overall S&P 500 is about 20% higher than its historical average, potentially capping valuation upside.

Bank of America has an “overweight” rating for the utilities sector.



3 thoughts on “Stock Market News: 5 Things To Watch For In Global Markets In 2020

  1. Pingback: 5 Things To Watch For In Global Markets In 2020 via /r/economy | Chet Wang

  2. Pingback: 5 Things To Watch For In Global Markets In 2020 -

  3. wsgifinance

    A great post. Thanks for sharing! I think those are all important things us investors need to be looking for in the new year!


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