My US Market Outlook Heading Into 2020

With corporate profits at an all-time high, unemployment at an all-time low, and the fed continuing to expand its balance sheet, investors have realized a 26.92% increase in the DJIA, a 27.4% increase in the S&P 500, and a 33.04% increase in the NASDAQ (all YTD 2019). It begs the question, how sustainable is all of this economic growth? Does the market have more room to run? Or is it time to take your profit?

Here is my take:

We are currently in a unique period where it seems everything is going right for the major indices. A phase one trade deal and robust economic growth have made many investors bullish including myself for the rest of 2019. But what should we expect in 2020?

Though inflation has been virtually nonexistent, with the Fed expanding its balance sheet at the rate it is, it seems almost impossible that inflation will stay at the record low it has. Though it is hard to tell when it will start to be a problem, there is no doubt to me that it could affect the economy and have a market reaction accordingly. For this reason, I feel as if a bottom-up investing approach is the best way to approach 2020.

Assuming an economy that is driven by high consumer spending as a result of the Fed's quantitative easing in 2019, companies that redistribute this excess cash back to shareholders should prove great investments in 2020. Also, companies that lead their industries in profitability and have a potential catalyst to spike during the year.

One company that I am looking at is AT&T (TS:T). Trading at 10.78X earnings compared to the market's 21.12X earnings, AT&T is a company that historically does a great job of returning profits and excess cash back to its shareholders in the form of dividends, and has a potential catalyst in its opportunity to enable faster speeds on its LTE networks through the implementation of 5G services. This is just one example of a company that I am forecasting as a great investment going into 2020.

I am also looking at certain commodities, specifically gold. Acting as a hedge against inflation, gold tends to perform well when inflation becomes a problem. And at the rate the Fed is expanding the money supply, I believe there is definitely a case to make for this. Another reason why gold may be a favorable investment for 2020 is that the correlation between the equities market and gold is beginning to tighten. Though gold and equities tend to act inverse to one another, gold has accompanied the roaring DJIA's 27.4% run YTD with a 14.87% return itself YTD. So, as the relationship between the equity markets and gold seem to be shrinking, investors may find safety in this precious metal.

To recap, it is clear to see from the large amount of ETF flows into the equity markets that investors remain optimistic heading into 2020. Though I remain hopeful, I think it is more important to take a step back and see the potential effects of the record amount of quantitative easing the Fed has employed this year and the risk-averse way of structuring a portfolio for 2020. Warren Buffett said it best. Be greedy when others are fearful, and fearful when others are greedy.

- Matt

Disclaimer: This is not meant to be taken as investment advice. This is simply my opinion and made for educational purposes.