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Asset managers urge caution in 2020

Illustration of a safety cone
Illustration: Eniola Odetunde/Axios

Investors can expect higher stock prices but also a lot of potential potholes in 2020, according to the investment forecasts of major asset managers.

What they're saying: "[I]n 2020 the margin for error — and opportunity — will likely be as small as it’s been in a very long time," top strategists at State Street Global Advisors wrote in their 2020 outlook.

  • "We foresee ... a stock market that grinds higher, but downside risks are building," JPMorgan Asset Management's outlook said.
  • "We remain concerned about the risk/reward of the S&P 500 near term," noted UBS in its outlook.
  • "We expect a positive return for 2020, but muted," BlackRock's CIO of fundamental U.S. equities Tony DeSpirito said during a recent media briefing.

Threat level: Managers are predicting the U.S. will avoid a recession. But most say the biggest risk to that is the U.S.-China trade war, which could be ratcheted up at any second by a tweet from President Trump.

  • Outlooks also noted the risks of a recession in Europe, steadily declining U.S. profit margins, weakening global aggregate demand, a labor market slowdown, the 2020 U.S. presidential election, and the positive effects of the 2018 U.S. tax cuts fading.

The U.S. consumer was responsible for the lion's share of growth this year, as CEOs have lost confidence and corporations have pulled back and will need some help in 2020.

  • "Falling corporate profits, additional tariffs scheduled for mid-December and Fed rate cuts likely on hold for a little while may make it tough for the consumer to continue to shoulder this larger burden," State Street said in its outlook.

The big picture: None of these major asset managers predict a resolution to the trade war next year, but they almost uniformly expect a de-escalation. That will allow the U.S. economy to grow somewhere between 1.5% and 2% next year and continue to add jobs.

  • Such an environment is expected to support far-improved earnings growth near 10%.
  • It will have to, said Charles Schwab chief investment strategist Liz Ann Sonders. "The wide gap between stock market performance and corporate after-tax profits suggests the latter needs to accelerate."

Be smart: Few money managers gave an explicit S&P 500 target, but top strategists at John Hancock, Jeffries, Bank of America Securities and others predict the stock market rises only about 5% from its current level.

  • Goldman Sachs analysts were the bullish outliers, predicting the S&P rising to 3,400 by year-end and U.S. growth between 2.25% and 2.5%.
  • Even Macquarie, which projects U.S. stocks doubling in value by 2030, said they see the S&P only at 3,300 by year-end.

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