We’re back! Or at least I am, with a look down the time tunnel for 2020, ahead of our whole team joining me next week. The Christmas break saw fund managers and other big market influencers take profit before year’s end so they could show off how good they were as investment experts. But I have to say it was hard to do badly in 2019.

Sure, a lot of people had reservations about my optimistic outlook for the past year at this time last year and while we didn’t get the 7000 I’d hoped for, it was a good 12 months to be long stocks. The final score for stocks locally was an 18.4% rise, and 24% if you add in dividends and franking, despite December coming in with a 2.4% slide.

That’s a beautiful thing to behold but I doubt I will be saying the same thing this time next year! However, I must quickly add that I do expect to be showing you a green on the screen chart this time next year but it will have more significant ups and downs and the slope will be gentler.

And the chief reason why will be because the gains in 2019 were so huge, there will have to be some reality bite revelations that will mean stocks prices will be adjusted.

By the way, there are experts, like the CEO of Longview Economics in the US, who’s tipping the S&P 500 to spike 10-20% in 2020! But he thinks Wall Street is close to a sell off, given the Dow beat 29,000 for the first time ever overnight!

In case you missed it, the US stock market was up 29%, the Eurozone put on 23%, China 36%, while Japan added 18%. It was a great year for stocks even with some pretty ordinary economic stories globally, which in part explained why stocks soared.

The past year was supposed to bring three US interest rate rises but it brought three falls. It was supposed to deliver a trade deal and that arrived in a shortened form but it did show up. Next year there will be no US rate cuts and talk of rises should start in the second half, if the US economy starts to show the positivity I expect.

But remember, some of this stock market rise is in anticipation of the better economy in 2020 that the consensus currently believes in.

My old mate Shane Oliver of AMP Capital is a great market info gleaner and this is what he’s expecting:

• Improving global growth and still easy monetary conditions should drive reasonable investment returns through 2020 but they are likely to be more modest than the double-digit gains of 2019, as the starting point of higher valuations for shares and geopolitical risks are likely to constrain gains and create some volatility.
• Global shares are expected to see total returns around 9.5% helped by better growth and easy monetary policy.
• Cyclical, non-US and emerging market shares are likely to outperform, particularly if the US dollar declines and the trade threat recedes as we expect.
• Australian shares are likely to do OK but with total returns also constrained to around 9%, given sub-par economic and profit growth.
• Low starting point yields and a slight rise in yields through the year are likely to result in low returns from bonds.
• Unlisted commercial property and infrastructure are likely to continue benefiting from the search for yield but the decline in retail property values will still weigh on property returns.
• National capital city house prices are expected to see continued strong gains into early 2020 on the back of pent up demand, rate cuts and the fear of missing out. However, poor affordability, the weak economy and still tight lending standards are expected to see the pace of gains slow, leaving property prices up 10% for the year as a whole.
• Cash and bank deposits are likely to provide very poor returns, with the RBA expected to cut the cash rate to 0.25%.
• The $A is likely to fall to around $US0.65, as the RBA eases further but then drift up a bit as global growth improves to end 2020 little changed.

So what are the views from overseas experts on investing? Let me sum it up neatly in a nutshell, so you can make up your mind on how you want to invest this year. Here goes:

• This is Barclay’s view: “Although our forecast is for subdued growth in earnings (roughly 5% in the euro area and 2% in the U.S.), this should be adequate to secure solid outperformance for stocks over bonds.” (Bloomberg)
• Goldman Sachs view: “Risky assets benefited from central bank easing in 2019 but now growth will need to drive returns. We expect moderately better economic and earnings growth, and therefore decent risky asset returns. But we also see plenty of risks, and more challenging valuations, so the upside is limited.”
• Ed Yardeni, who in the past ran the investment strategy for the likes of Deutsche Bank and Prudential, expects earnings to be up 4% to 5%, which should take the S&P 500 up to 3500 from its current level of around 3270. That would be a 7% gain, which would be nice for our stock market, given Wall Street’s function of being our market leader.

That said, Yardeni expects volatility and this is what he recently told CNBC: “I’m concerned about a possible melt-up here,” the Yardeni Research president explained. “I’ve been shooting for 3,500 for the S&P 500 by the end of (2020), and we’re getting closer and faster than I would have expected. A 10% to 20% correction would be quite possible if this market gets to 3,500 well ahead of my schedule. Bull markets do best when you’ve got a wall of worries,” Yardeni said. “What I’m worrying about is nobody is worried anymore.”

Overnight, there was a little bit of worry about Iran, with new US sanctions imposed and the jobs report wasn’t as good as expected. Economists tipped 160,000 jobs would be created in December but the number came in at 145,000.

Also, wages growth came in at 2.9% on a year-over-year basis, which was less than the forecasts of 3.1%. These misses really aren’t market-breaking.

Despite even technical readings suggesting that a pullback is overdue, the trade deal – phase one – is set to be signed next week and that could easily keep optimism front and centre, at least for the short term.

What I liked

• Retail trade rose by 0.9% in November – the biggest monthly lift in two years. The annual growth rate rose from a 21-month low of 2.3% to an 8-month high of 3.2%.
• The trade surplus rose from $4.075 billion in October (previously $4.502 billion) to $5.8 billion in November. Australia has recorded 23 successive monthly trade surpluses. The rolling annual surplus was a record $67.4 billion in the year to November.
• The World Bank expects global economic growth to lift from an estimated 2.4% pace in 2019 to 2.5% in 2020.
• The ISM services purchasing managers’ index (PMI) in the US rose from 53.9 to 55 in December (forecast 54.5).
• US stocks rose to record highs on Thursday. US-Iran tensions eased and there was optimism on the Phase 1 US-China trade deal to be signed next Wednesday.
• Chinese consumer prices rose by 4.5% (forecast: 4.7%) over the year to December, unchanged from November. In 2019, consumer prices rose by 2.9% – broadly in-line with the government’s 3% target.

What I didn’t like

• The Australian Industry Group (AiGroup) Performance of Services Index (PSI) fell by 5 points to a 4-month low of 48.7 points in December. A reading below 50 indicates a contraction of services sector activity.
• The weekly ANZ-Roy Morgan consumer confidence rating fell by 1.7% to 106.2 points – the lowest New Year reading since 4 January 2009. Sentiment remains below both the average of 114.2 points held since 2014 and the longer term average of 113.1 points since 1990. And you’d have to blame the bushfire disaster.
• ANZ job advertisements fell by 6.7% in December (the biggest fall in seven months) to be down by 18.8% over the year to 142,569 (the lowest level in 3½ years) in seasonally adjusted terms.
• The ‘final’ CBA/IHS Markit Services Purchasing Managers’ Index rose from 49.7 points to 49.8 points in December. Any reading below 50 indicates contraction in activity.
• The Australian Industry Group (AiGroup) Performance of Manufacturing Index rose from a 3-year low of 48.1 points to 48.3 points in December. Any reading below 50 indicates contraction in activity.
• In December, 84,239 new vehicles were sold, down by 3.8% over the year. In calendar 2019, sales of new vehicles totalled 1,062,867 units, down 7.8% on a year ago. In 2019, SUVs accounted for a record 60.5% of combined SUV and passenger vehicle sales.

Bushfires could burn the economy

The fires could easily tip our economy into recession but it will depend on how quickly the Government’s rescue money can be pumped into the repair work. As you can see from my “dislikes”, the economy is soft and the negative confidence impacts of the fires could soften the economy even more. Treasurer Josh Frydenberg and his State counterparts have a huge job ahead and they can’t procrastinate. The irony is that the repair spending will boost economic growth later this year!

You can see why economics is called a “dismal science” but I am expecting to deliver more optimistic market news over the course of 2020. And so I will be a buyer of overall market dips, as I’ve been since 2009.

On our YouTube channel:

• Experts tip their stocks for 2020 – Switzer TV: Investing

• REA’s Nerida Conisbee says house prices are rising! – Switzer TV: Property

Top Stocks – how they fared:

The Week Ahead:

Australia

Monday January 13 – Credit & debit card lending (November)
Monday January 13 – Melbourne Institute inflation gauge (December)
Tuesday January 14 – ANZ-Roy Morgan consumer sentiment index
Wednesday January 15 –Building activity (September quarter)
Wednesday January 15 – Engineering construction activity (Sep. Quarter)
Thursday January 16 – Lending (November)
Thursday January 16 – Overseas arrivals/departures (November)

Overseas

Monday January 13 – US Monthly budget statement (December)
Tuesday January 14 – China International trade (December)
Tuesday January 14 – US NFIB Small business optimism (December)
Tuesday January 14 – US Consumer prices (December)
Wednesday January 15 – US Producer prices (December)
Wednesday January 15 – US Federal Reserve Beige Book
Thursday January 16 – US Import/Export prices (December)
Thursday January 16 – US Retail sales (December)
Thursday January 16 – US Philadelphia Fed manufacturing index (January)
Thursday January 16 – US NAHB Housing market index (January)
Friday January 17 – China Economic (GDP) growth (Dec. Quarter)
Friday January 17 – China monthly activity data (December)
Friday January 17 – US Housing starts (December)
Friday January 17 – US Industrial production (December)
Friday January 17 – US Consumer sentiment (January)

Food for thought:

“And now we welcome the new year. Full of things that have never been.”

– Rainer Maria Rilke

Stocks shorted:

ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short, which could suggest investors are expecting the price to come down. The table shows how this has changed compared to the week before.

Chart of the week:

This table published by Shane Oliver of AMP in the article ‘Bushfires & the Australian Economy’ on January 9, 2020.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.