I am very excited for 2020. In fact, I expect it to be an even better year for the stock market than 2019! There are a few main reasons why I’m particularly optimistic about the Near Year, so today, let’s talk about two.
Less Uncertainty in 2020
One lesson I’ve learned in my 40 years of investing is that the stock market does not like uncertainty. Not one bit. That was especially true this year, as stocks sold off time and time again over the Federal Reserve, Brexit and negative headlines surrounding the U.S-China trade war – or trade spat, as I like to call it.
This was an especially sore spot for investors, as there were dire warnings from the financial media that the U.S. economy was teetering on the edge of recession because of the U.S.-China trade spat, President Trump was going to make it worse, and so on and so on. Of course, as we now know, none of this proved true. The U.S. economy is thriving, and the U.S. and China are about to ink a Phase One deal early next year.
So, the U.S.-China trade spat should be a non-issue for the stock market in 2020.
Now, while all of the terms of the Phase One trade deal haven’t been revealed yet, there are a few things that we do know right now.
First, the Trump administration canceled the new tariffs on another $160 billion worth of Chinese goods that were scheduled to be implemented on December 15. The U.S. also plans to reduce the tariff on $120 billion worth of Chinese imports from 15% to 7.5%. The 25% tariff on $250 billion worth of Chinese goods remains in place for now and will likely be used as leverage in future negotiations with China.
U.S. trade negotiators also noted that China had committed to purchasing at least $32 billion more in U.S. agricultural products in the next two years. That would bring China’s total U.S. agricultural purchases to nearly $50 billion each year. Interestingly, Chinese trade officials didn’t announce a specific amount that the country would purchase in American agricultural products. So, the final number may still be hashed out over the upcoming weeks.
But the great news is that both China and the U.S. released statements last Friday confirming that they had reached agreement on a Phase One trade deal. And President Trump dubbed the Phase One trade deal as “phenomenal.”
Improving Earnings Outlook
In addition to less uncertainty and rising optimism, investors also are starting to pour back into the stock market because the earnings outlook will improve significantly in the New Year.
Yes, fourth-quarter earnings and sales are still expected to be lackluster for the S&P 500 due to more difficult year-over-year comparisons. But looking further out, Bespoke recently documented that positive analyst earnings revisions have been the most important fundamental characteristic propelling stocks higher in recent months.
I anticipate that many S&P 500 companies will issue positive guidance for 2020. This is mainly because year-over-year comparisons will still be much more favorable, and the economic outlook is especially promising without any interest rate uncertainty. In fact, FactSet also recently noted that earnings should grow between 5% and 7% in the first six months of 2020.
The Leaders of 2020
We’ve been in a stock picker’s market for some time now, so in order to really rack up the profits you need to be in the right stocks.
Now, if you’re not invested in the stock market yet, I encourage you to jump in now. 2020 is going to go down in the record books, folks, and we don’t want you to miss out. However, time is running out to position yourself, as the best buying window – between Christmas and the New Year – is quickly closing.
If you’re not sure of where to invest, that’s no problem. Matt and I have 10 fresh stocks with the staying power to climb higher through 2020 and provide stunning returns. You can get our 10 stock picks for 2020 here.