Investors are likely to experience many headwinds in 2020 as the prolonged trade war with China reaches more hurdles and additional volatility continues with a presidential election.
Whether the extended bull market will continue remains unknown as tariffs, inflation and a slowdown in the economy could impact growth profit margins, dampen returns and result in slower corporate earnings.
Here are 10 stock market predictions from chief market strategists, financial advisers and chief financial analysts.
10 Stock Market Predictions for 2020
1. Expect More Volatility in 2020
Given it's an election year it's likely the administration will do what it can to keep the decade-long bull run going, said Ryan Grace, chief market strategist for dough, a Chicago-based brokerage firm.
"I'd expect more volatility heading into the election," he said. "I don't see these current below average levels in volatility being sustainable. There's a near record short position in the volatility futures presently and we all know how that ended last time in February of 2018."
2. Global Economic Slowdown Could Continue
Grace said he does not see a breakout in yields across the curve which seems to be the call every year.
"We're not out of the woods yet regarding the ongoing global economic slowdown," he said. "China continues to slow, there are signs the U.S. economy is slowing and there's no resolution to the trade deal yet."
3. Trade War Resolution Remains Unknown
The trade war is still the biggest question facing investors, but "with markets where they are currently, it seems most are optimistic there's a resolution coming," Grace said. "The actual details of the deal matter. China can buy more agricultural products and that's great for U.S. farmers, but it doesn't solve any of the more structural issues that got us here in the first place."
4. Federal Reserve May Need to Be More Accommodative
While the Federal Reserve, the central bankers who vote on the future of interest rates, has said it plans to be on hold unless something changes in the economy, there is a chance it could occur, Grace said.
"When you look at the dot plot, they don't appear to see rates going much lower from here, but if you get a sub-1% quarter-over-quarter GDP print this year or the start of 2020, which is what the Fed's own models are currently tracking, they're going to have to be much more accommodative," Grace said.
5. Stock Market Won't Reach Highs Again
The highs that the stock market reached in 2019 are not likely to be repeated, said Ron McCoy, president and CEO of Freedom Capital Advisors, a Clermont, Florida-based investment company.
"Making a prediction with all of the noise out there is not easy even for professionals, but I am confident we likely won't see another 20% year in 2020," McCoy said. " My advice to investors is to know what you own and be careful if you are chasing yields. Thanks to the Fed's cutting, retired investors are finding it difficult to find a decent return on their savings with relatively low risk and some are unaware of the risk they are taking when they see an investment yielding 9%."
6. Investors Should Focus on the Big Picture
Since there will continue to be plenty of factors impacting the markets in 2020, particularly the China trade dispute and increasingly heated rhetoric leading up to the election, investors should "block out the noise and continue to focus on big picture economic fundamentals like unemployment and inflation, as well as their own financial goals and continue to save and invest accordingly," said Greg McBride, chief financial analyst for Bankrate, a New York-based financial data provider.
The Federal Reserve is likely to be on the sidelines and not vote to lower interest rates unless the economy slows sharply, he said.
"A solid economy and continued low interest rates make a nice backdrop for investors, though there will be buying opportunities on market pullbacks," McBride said.
Although bonds provide income and less volatility to a retirement portfolio, the risk that bond investors face is "if the global economic outlook improves even marginally or if inflation moves unexpectedly higher," McBride said. "In either event, bond yields could surge and deliver losses to investors sitting in a so-called safe haven."
7. Politics Will Impact the Markets
While many experts said politics should be kept out of investing strategies, the presidential election will "most definitely play a major role," said Bill DeShurko, president of 401 Advisor, a registered investment advisory in Centerville, Ohio.
While most major polls currently have President Donald Trump losing to the top Democratic candidates, professional bettors from Sports Betting Dime have either Trump or Pence as large odds on favorites, he said.
"Trump will be looking for more tax cuts, while analysis of Senator Elizabeth Warren's tax plans suggest that the current income limit for Social Security taxes will be removed and effectively adding a 12.4% tax on all income over $127,000," DeShurko said.
The rest of the presidential candidates have policies somewhere in between and taxes do affect the economy.
"Faced with a slowdown in global trade, low global economic growth expectations, a lack of monetary options to stimulate the economy and the biggest headwind, flat or even declining population growth within the major global economies I question the ability of the US economy to absorb the hit of major tax hikes," DeShurko said. "Throw in that no Democrat is really seen as a solid front runner, the Republican hold on the Senate is tenuous and who knows how the impeachment hearings will end or be perceived by the electorate, 2021 economic policy from Washington is a most certain crapshoot (the 2020 stock market will mostly reflect market views for 2021)."
8. Investors Should Focus on Fundamentals
The trade war and the Fed have been market movers in 2019, dampening "positive vibes on the economic fundamentals front," said Mike Loewengart, vice president of investment strategy of E-Trade ETFC , a New York-based brokerage.
Value stocks gained traction over growth stocks in 2019 and was a trend the market has not seen in some time, he said.
"Value stocks tend to be thought of as stodgy, low-priced stocks that haven't gone anywhere for a long time," Loewengart said. "It simply refers to stocks that may be undervalued based on one or more fundamental metrics-earnings, revenues and dividends."
Some value stocks may have relatively low prices while others traded at record highs.
"At this stage in the business cycle, investors should place increased focus on fundamentals as we head into 2020," he said. "Remember, just because a style box refers to an investment as a value play there may be more than meets the eye, so make sure you look under the hood."
9. Temper Expectations for Equity Markets
Investors should modify their expectations for returns in the equity markets in 2020 because of political uncertainty in the U.S. and abroad, slowing corporate earnings growth, China trade uncertainty and the lessened likelihood of future rate cuts by the Federal Reserve, said Robert Johnson, a finance professor at the Heider College of Business at Creighton University in Omaha, Nebraska.
Analysts point to the potential of a potential Democratic presidential win by a left-leaning candidate such as Elizabeth Warren or Bernie Sanders. While that would certainly infuse a different kind of uncertainty into the markets, the potential re-election of Donald Trump is also fraught with uncertainty, he said.
"A second term for Trump would likely further embolden the president and result in even more unpredictable behavior by a volatile president," Johnson said.
The situation in Hong Kong is alarming for a plethora of reasons and a likely resolution does not appear imminent. The Hong Kong political situation affects many aspects of U.S. business activity and is also exacerbated by the trade tensions between the U.S. and China, Johnson said.
The likelihood of a recession in the U.S. is not on the near-term horizon based on recent economic indicators, Johnson said. Investors need to keep an eye out for slower corporate earnings growth because it will likely put a damper on equity returns in 2020.
The bottom line is that the S&P 500 and Dow Jones Industrial Average will show very modest increases in 2020 and likely to be in the 5% range, Johnson said.
"I wouldn't counsel investors to change their asset allocations, as stocks do not appear to be overvalued relative to bonds," Johnson said. "I would encourage investors to temper their expectations regarding returns in the upcoming year."
10. Investors Should Remain Disciplined in Their Investment Approach
Investors should remain disciplined in their investment approach by not overcompensating or stretching themselves for excess yields or returns and instead place emphasis on the quality of investments, said Chris Osmond, chief investment officer at Prime Capital Investment Advisors in Kansas City, Missouri.
More risk-taking occurs in low-rate environments. As investors search for yields, they are often exposed to the "unintended consequences of over exposing their portfolios to unnecessary risks such as sacrificing the quality of bond picks and over-allocating in equities in search of yield and total return, such as investing in REITs, utilities and consumer staples," Osmond said.
While stocks will continue to rise, the pace will be more moderate in 2020.
"I would not expect 25% returns for the S&P 500, but ultimately, the backdrop for equities is solid," Osmond said. "The economy is growing, albeit at a slowing pace, inflation is low to non-existent, the labor market is solid and low interest rates should bode well for corporate profits and ultimately stock prices."
Fixed income investors will face more hurdles as the slowdown in the economy continues.
"While I anticipate yields to fluctuate over the course of the year, I wouldn't be surprised if the 10-year Treasury ended 2020 relatively flat," Osmond said. "When comparing 2020 return to 2019, bond investors might want to temper their expectations. 2020 may be a year in which they merely clip their coupons."