Jean highlights some key takeaways that may help you with next year’s investment decisions.
What’s in stock for 2020 for the global economy and markets? We see a big shift in the macro environment – as the dovish monetary policy pivot of 2019 fades as a key driver. Our 2020 Global outlook lays out our outlook on global growth – and more. It also features a new tactical asset allocation framework – with high-level directional views across broad asset classes and detailed views within – all scaled by our conviction levels. Our modest pro-risk stance is little changed, but we have made meaningful changes under the hood.
We introduce three new investment themes for 2020. The first of these: Growth edges up over the course of the year, picking up the baton to support risk assets. The unusual late cycle, dovish pivot by central banks has led to a dramatic easing in financial conditions. The impact of such easing on the real economy typically comes with a lag but has been particularly delayed this time as it has been partially offset by the protectionist push. See the gap between our Growth GPS (yellow line) and where we would expect growth estimates to be purely implied by financial conditions (orange line) on the chart above. What would challenge this outlook? If U.S. China trade talks break down, or protectionist pressures broaden and ratchet higher, it could undermine business and market sentiment, cutting short the growth uptick we expect.
Powerful structural trends are testing limits — and threaten to intersect with the near-term outlook and become market drivers. Rising inequality and a surge in populism have implications for taxes and regulation. Trade frictions and deglobalization are weighing on growth and boosting inflation. Interest rates are hitting lower bounds and crimping the effectiveness of monetary policy. And sustainability-related factors such as climate change are having real- world consequences, and affecting asset prices as investors start to pay attention.
This was the overarching backdrop for the discussions when some 100 BlackRock investment professionals gathered in November to debate 2020’s market outlook. Our outlook publication features key takeaways from these debates. Highlights include: how yields hitting lower bounds are prompting a rethink of the role of government bonds as portfolio ballast; the risk of supply shocks from deglobalization and climate change lifting inflation over time; the prospects for a pause in U.S.-China trade tensions; and the potential for divergent policy outcomes in the U.S. presidential election in 2020.