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LPL Research is proud to release Outlook 2020: Bringing Markets Into Focus, our annual look at what we expect in the markets in the coming year. LPL strategists focus on the four pillars of our investment process — stocks, policy, the economy, and bonds — to help you focus on the key trends and market signals in 2020.
STOCKS: S&P 500 INDEX APPEARS FAIRLY VALUED AROUND 3,250–3,300
Based on expectations for better earnings growth in 2020, along with anticipated continued economic growth, LPL strategists discuss the expected support for stocks at current valuations. Their 2020 year-end S&P 500 fair value target is 3,250–3,300, which is calculated on a trailing price-to-earnings ratio (P/E) of roughly 18.75 multiplied by their 2020 S&P 500 earnings per share (EPS) forecast of $175, as shown in our chart below. LPL Financial Research analysts believe mild inflation and still-low interest rates support these valuations.
Corporate earnings growth is expected to bottom in Q3 ’19 and should expand into 2020. Any further U.S.-China trade progress in early 2020 could help keep the U.S. economic growth at or above the trend of the current economic expansion.
POLICY: PROGRESS ON TRADE REMAINS CENTRAL TO THE 2020 OUTLOOK
Progress on U.S.-China trade discussions needs to come sooner rather than later if economic growth or corporate profits are going to improve in 2020. Based on recent signals from the yield curve and economic reports, LPL strategists report that they suspect the Federal Reserve (Fed) is in a wait-and-see mode as it gauges the impact of its 2019 rate cuts, which can take time to flow through to consumers and businesses.
ECONOMY: EXPECTED GDP GROWTH OF 1.75%
LPL Financial Research analysts expect 1.75% U.S. gross domestic product (GDP) growth in 2020, reflecting the potential for continued trade and geopolitical uncertainties amid the gradual slowing of the economy at this point in the economic cycle. Their forecast reflects the U.S.-China trade dispute dragging into the first part of 2020 and increased odds of recession in the latter months of 2020 or early 2021.
BONDS: MODEST INCREASE FORECASTED FOR LONGER-TERM YIELDS
LPL Financial Research look for the 2020 year-end forecast for the 10-year U.S. Treasury yield to be a range of 2–2.25%. Continued Fed flexibility should provide enough support to the economy to foster a modest increase in longer-term yields.
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IMPORTANT DISCLOSURES Please read the full Outlook 2020: Bringing Markets Into Focus publication for additional description and disclosure. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted. All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results. Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. This research material has been prepared by LPL Financial LLC. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity. The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured. These products are not bank/credit union obligations and are not endorsed, recommended or guaranteed by any bank/credit union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible. Member FINRA/SIPC For Public Use — Tracking #: 1-922357 (12/20) |