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Special Edition: 10 for 2020



Economic Growth

We expect global growth to recover from 3.1% in 2019 to 3.4% in 2020 in response to easier financial conditions and an end to trade escalation. Though cyclical risks have risen, we still think a recession in 2020 is unlikely. Instead, corrections driven by idiosyncratic events are more probable.


Across many advanced economies, we expect continued labor market improvement and upward pressure on wage growth. However, the pass-through to core price inflation should remain limited according to regional Phillips curves' flatness.


Gradual wage growth and tariff-related price pressures will continue to nudge US inflation higher but we think the Fed’s policies will unlikely change, absent sustained pressures. Below-target inflation remains a theme in Europe and Japan, where supportive fiscal and monetary actions may be required.

Monetary Policy

We see the mid-cycle adjustment at its end with major central banks moving to the sidelines. We believe 2020 will be characterized by a smaller central bank profile reflecting stable macro conditions, systemically contained inflation, and a desire to avoid politicization in the US.


Chronic uncertainty surrounding trade and Brexit is likely to subside in 2020, only to be replaced by US election risk. Historical advantages of incumbency and economic health should favor Trump, though record net negative approval opens the door for a meaningful challenge and potential Senate leadership flip.


We expect moderating equity returns amid full valuation and sidelined central banks. While broadly neutral across sectors and styles, sequentially improving growth in 2020 may support tactical tilts to value, small caps, and non-US equities. In Europe, we prefer ‘bottom up’ alpha positioning to isolate companies with higher earnings growth, profit margins, and global revenues.


The yield curve inversions so prominent in 2019 were the result of sharply lower term premia and lack the signaling power of previous cycles. We think sovereign yields are near fair value and that higher yields would likely require a cyclical growth uptick.


We believe 2020 default risk is relatively limited as debt-to-earnings and -assets remain stable. Yet late-cycle conditions such as near-record leverage and slowing earnings growth will make bottom-up selectivity and idiosyncratic positioning more critical than ever.


We still favor the euro to the US dollar in 2020, particularly as central banks have likely reached the bottom of easing and global risk tolerance improves. The likelihood of a ‘deal’ Brexit could also allow for further sterling appreciation.


We believe average volatility should remain relatively stable in 2020, though uncertainty from trade, tweets, and US elections may lead to episodic flare-ups.

Equities: A New Era

US equities outperformed by a wide margin in 2019, supported by strong earnings, low rates, and relatively contained volatility. We expect the 2020 market backdrop to remain supportive of risk assets, but over the longer term we expect this trend of superior US equity returns will likely moderate in the decade ahead. Consequently, we would recommend
1) sticking to the plan by maintaining a diversified, strategic asset allocation, with 2) alpha-oriented strategies over pure beta, and 3) income-oriented investing to capture a greater portion of returns through distribution relative to capital appreciation.

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