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Steve's Newsletter

Steve's January 2020 Newsletter

Economist John Kenneth Galbraith famously said "There are two kinds of forecasters; those who don't know, and those who don't know they don't know" That being said, I still continually absorb by reading and viewing as much financial data and information as I possibly can, so that I will discern a reasonable consensus of opinion about the direction of the economy and the markets. It's not that easy as we go into 2020 and a new decade!

Over the last weeks every corner of the financial press, general news, and financial internet analysts have been prognosticating about what the year 2020 and the next decade will bring to investors.

Here is an overview of some of the more interesting factoids at the top of my list:

- You will not see the stock market of 2020 equaling 2019's stellar performance. The next decade will not be as great as the last decade.

- The S&P 500 Index ended 2019 at 3231. Analyst's S&P targets for Dec 31, 2020 are: Morgan Stanley 3000, UBS 3000, State Street 3249, BOA 3300, RBC 3350, Citi Group 3375, JP Morgan 3400, Goldman Sachs 3400, Credit Swiss 3425, Blackrock 3480, and Yardeni Research 3500. These consensus returns for 2020 are "below the historical average return of +7%."

 - When investors are euphoric about investing in the markets it is usually time to be cautious. We do have the "fear of missing out" (FOMO) building momentum; but no euphoria yet! Beware of the "Black Swan!" Actually when you have a great up year in the markets, it is usually followed by a positive year.

 - "Don't Fight the Fed." Low interest rates and robust consumer spending (the consumer is now 70% of the economy) have been the underpinnings of market growth.  Rising wages might cause inflation and intern cause the Fed to raise interest rates. Any hint of an interest rate increase would be concerning.

- A trade deal is already priced into the markets. Phase 2 trade will not be a consideration prior to the election. Business is still scared of the trade unknown, protectionism, populist rhetoric, and election polarization.

- US companies need to show increased profitability in order to match their lofty stock prices and P/E multiples' (how much we are willing to pay for a dollar of earnings). Corporate profits will need to catch up to the market; or stocks may have to correct to move more in line with profits.

- Few believe the longest ever bull market is on its last leg. However, U.S GDP is expected to grow by (a subpar) 2% to 2.2% in 2020, buoyed by consumer spending that has helped offset slowing business investment. Previous GDP's: 2017 was 2.4%, 2018 was 2.9%, 2019 will be about 2.3%

 - Very few analysts see a recession in 2020. Remember that bull markets do not die of old age or an upward line on a chart. They are killed by an approaching recession within the normal market cycle. It is very likely that we will have a typical 8 to 10% correction during 2020.

 - And finally, negative interest rates now account for over $14 Trillion in bonds worldwide! It's just plain stupid and a way to manipulate economies at a cost to the retiree and capital investment! It should be a real concern!

Every day I look at all the above moving parts plus more, to create, and rebalance your Newmarket Advisors, Inc. portfolios to match your risk tolerance, age, personality, diversification of assets, and retirement timeline.

I manage risk first, and then I manage money!

Happy New Year 2020!

Steve Newman