Several hot-button issues are simmering on the burner this Christmas season. Investors should proceed with caution and continue to implement proper portfolio diversification techniques to protect and grow wealth during these increasingly uncertain times.
Here are six issues to watch in 2020.
Slower Economic Growth, But no Recession
The U.S. economy continues to expand at a sub-par pace. The Federal Reserve's "insurance rate cuts" this year just may have done the trick. Heading into the New Year, we see the potential for continued slow growth in the 1.7% area in 2020. Barring an expansion of the Trade War in 2020, the country may be able to sidestep a recession next year.
U.S. Presidential Election
We are entering the New Year in a deeply divided nation with a fractured political landscape. The outcome of the November 2020 presidential election Tis expected to have a significant impact on the U.S. stock market. The record number of candidates in the Democratic Party also represents extremes in policy proposals from center-left to far-left. Democratic candidates on the far left have indicated support for a "Wealth Tax," which would be an annual tax on net worth above certain levels, in addition to taxing capital gains as ordinary income in the top 1% of earners and a significant hike in the corporate tax rate. Many of these far-left proposals hit Wall Street and the stock market hard if one of those candidates appears likely to win.
U.S.-China Trade War
The mid-December Phase One U.S.-China deal offers reasons for cautious optimism. If the trade war will most queries resolved in a meaningful way, it could provide additional strength to the U.S. economy in 2020. Since the tariff war began, U.S. agricultural exports to China fell from $18 billion to $7 billion. If farmers get actual relief from the Phase One deal, it could be impactful. However, until a more extensive agreement is agreed to, all parties involved will remain cautious, awaiting more certainty that a higher pace of exports will continue.
Negotiations could turn tense again in 2020. Many outstanding questions remain in the trade war, especially around technology transfer. The outcome of the trade policy and whether the world's two largest economies will find agreement and be able to remove all tariffs back to pre-war levels remains uncertain at best. The trade war has taken its toll on the U.S. manufacturing sector and farmers as well, and if it continues, business investment will continue to wane.
Funding Market Stress Will Remain an Issue to Watch
How stable is our banking system? In September, double-digit spikes in overnight lending rates rattled financial markets and highlighted questions about the viability of specific banks and the monetary policy. The Federal Reserve aggressively bought U.S. T-Bills in recent months in an attempt to inject liquidity into the markets and calm the system, which is an issue we will continue to monitor closely in 2020.
Federal Reserve: Lower for Longer
The U.S. dollar is likely to weaken in 2020 as the Fed moves to the sidelines and could keep monetary policy on hold all year long. That, alongside numerous other bullish factors, is expected to support gold to even greater heights in 2020.
Gold on the Rise
Gold is up around 14% year-to-date, and forecasts point higher in the coming months. All of the issues mentioned above could help drive gold higher, especially if the economy weakens further next year. Wall Street firms remain bullish on gold, which means current levels remain attractive buying levels.
Goldman Sachs is maintaining its 3-, 6- and 12-month forecast for gold at $1,600 per ounce, citing recession fears and political uncertainty as key drivers. Longer-term, BofA Global Research is maintaining a $2,000 an ounce price target for gold on concerns over quantitative failure.