Ten Predictions for 2020
Author: Greg Valliere
January 2, 2020
HOPEFULLY YOU HAD A GREAT HOLIDAY: Now it’s time to plunge head-first into the ’20s, so let’s start with ten predictions for the new year:
1. Thanks to strong consumer spending, solid housing and improving business investment, the U.S. economy will surprise to the upside this year, growing at about 2-1/4%; U.S. inflation will stay just above 2%; and the ten year Treasury yield will rise to about 2-1/4%. Goldilocks — except for one thing . . .
2. The Federal Reserve won’t provide a life preserver, as it did in 2019. The central bankers will pour billions into the overnight repo market, but the fed funds rate won’t budge this year; interest rate reductions are over for now because there’s still no recession on the horizon.
3. The modest China trade truce will help the U.S. economy at the margins, improving business confidence and consumer spending. But Europe will have to worry about new U.S. tariffs and a year of bickering over Brexit.
4. The staggering rise in Washington spending will keep the exploding federal budget deficit well above $1 trillion annually for years to come. This will boost the economy now, but a day of reckoning on red ink looms later in the decade.
5. Ongoing scandals — mostly self-inflicted wounds — will keep Donald Trump’s job approval rating below 50% this year, and he will barely win a second term, as the Electoral College math tightens. Could Trump miscalculate over calling witnesses during what should be a cut-and-dried Senate impeachment trial? Can’t rule it out, but acquittal is very likely.
6. The Democrats will squabble all the way to a divisive convention on July 13-16, when liberals and moderates will reluctantly agree on an unappetizing ticket — perhaps Joe Biden and Amy Klobuchar — that does little to inspire progressives, young voters or minorities.
7. Democrats will keep the House but the Senate will stay Republican, thus maintaining a firewall that will block liberal legislation sent from the House. A Republican Senate will be a major plus for the markets; the GOP will block Medicare for all, higher taxes, harsh measures against tech and drug companies, etc.
8. Trump’s blind spot: Climate change, drought and fires, floods that inundate cities from Venice to Davenport. Climate change is an increasingly serious issue, yet Trump denies it — at his own peril.
9. As usual, there will be geopolitical worries: North Korea, Hong Kong, Iran’s belligerence in the Mideast. Trump will maintain isolationism whenever possible — backed up by a U.S. defense budget of nearly $750 billion annually, headed higher.
10. Demographics, our destiny: the exodus will continue unabated as taxpayers flee the New York City region for Florida, Charlotte, Nashville, Austin, etc. And throughout the world, declining birth rates will become a huge long-term demographic issue.
BOTTOM LINE: A stock market this overbought could sell off at any moment, but the fundamentals still look solid — full employment, moderate growth, diminished trade risks, etc. We’ll leave the market analysis to others, with one note of caution: there are signs of froth, unmistakably, as this new decade begins.
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