Are you an investor, dealing with forex trade or even contracts for differences (better known as CFDs)? And what is there to expect in 2020? In retrospect, last year almost became a perfect year for people investing in the stock market. And since then it has continued to advance solidly with little volatility.
However, there are things that investors need to worry about. For example, trade tensions, political discord, impeachment proceedings, sliding interest rates and many more. Although so far, none of these rumblings have dragged the market down.
Help From Cyclical Factors
In 2008, there was a 37% slide that occurred because of the Great Recession. This year, the presidential campaigns will continue to generate excitement and moreover, optimistic election speeches that are drowned out through the rancorous political debates that are surely on the way. But investors must be careful to not allow their political biases to cloud their financial behavior.
Profits Have To Catch Up
In 2019, the market performance saw big gains despite a dismal earnings backdrop. In 2020, expect pending financial reports to show that earning for the S&P 500 Companies could slip by 1.7%, according to research conducted by Zacks Investment Research. According to Zacks, they expect earnings for the larger corporations to increase by 4%.
High Valuations, But Not Excessive
One way to stretch valuations is having a strong market advance that will be coupled with weak earnings; it’s something that unfolded in 2019. For example, the price-earnings ratio of the market stood at 18.2 based on the forward or even expected profits before the end of 2019. That’s up from 14.4 the year before, according to JPMorgan Asset Management. Moreover, the price-book value ratio also climbed from 2.7 to 3.3, although the price-cash flow also increased from 10.6 to 13. Today, the trend is for stocks to continue to become even more expensive. That means, corporate management still has work to do in order to ensure they bring 2020 profits to line up with investors’ optimistic expectations.
Lack Of Better Options
The stock market may see diminished potential this year compared to 2019, although it could see a jump simply because there are no enticing alternatives.
The Vanguard investment group is warning that investors should expect only modest returns over the coming decade. More specifically, Vanguard is expecting annual stock market returns to range between 3% and 5% per year over the next 10 years. The good news is that foreign stocks, having low variations, are expected to perform better, with potential yearly returns ranging between 6% and 8%.
Final Thoughts
Professional prognosticators and the market mavens are expecting another positive, if not muted, year in 2020. Of course, the double-digit returns of 2019 will be tough to repeat. Despite all of the political turmoil, trade war battles and other threats, all of the major assets managed to post a performance for the ages, making the chances of repeating slim.
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