Throughout 2019, investors kept hearing one word over and over again: Recession. There was a reason for that — many of the traditional indicators were signaling that an economic slowdown was ahead.
Rather than a stock market meltdown or slowing job growth, investors have instead seen the major benchmarks reach record levels in recent weeks. Job growth has smashed expectations and unemployment is at a 50-year low.
Those positives have quieted much of that recession talk. Economists put the odds of a recession starting by the end of 2020 at 43% as of December, down from 60% in June, according to the results of surveys conducted by the National Association for Business Economics.
"All the bears have gone into hibernation," Matthew Miskin, a co-chief investment strategist at John Hancock Investment Management, told members of the media during the company's recent 2020 outlook event in New York.
There were a few rough patches in the market over the course of the year. But moves from the Federal Reserve, including three rate cuts, have helped keep the economy humming and the market climbing higher.
"There's this idea of everything being awesome right now," Emily Roland, John Hancock Investment Management's other co-chief investment strategist, told reporters at the firm's event. "We're sitting here near these all-time highs, and volatility has been low."
Investors may want to temper expectations for next year. Wall Street's stock forecasters currently project that the S&P 500 will finish 2020 at about 3,272, which is less than 5% above its current level.
While that's still pacing ahead of inflation, 5% growth would represent a significant slowdown from the past few years. The S&P 500 has returned an average of around 10% over the past 90 years — and is on pace for gains of more than 25% this year alone.
There are a couple of reasons economists and investors are still cautious about how the economy and the stock market could perform next year. First, we're at or near "full employment," meaning most everyone able and willing to work can. So the unemployment rate isn't likely to see significant declines in coming months. Second, there is still plenty of uncertainty in the markets as to what's going to happen with the ongoing trade war with China and other countries.
Legendary investor Howard Marks recently told CNBC that while he doesn't expect a market decline, it's smart for investors to make sure your investments are in line with your risk tolerance.
"The economic expansion and the bull market are old," said Marks, who cofounded Oaktree Capital Management. "There's a lot of uncertainty in the world and it strikes me that one should not have as much risk as one did three years ago or six years ago."
Video by Jason Armesto
Of the 53 professional forecasters that make up the panel of the National Association for Business Economics survey, for example, no one predicts a 2020 recession. A model from Goldman Sachs estimates that there is less than a 25% chance of a recession in the next 12 months, and notable investors including Marks and "Bond King" Jeffrey Gundlach, CEO of DoubleLine Capital, have told CNBC that they don't expect a recession during 2020.
Still, there are moves you can make with your career, money, and debts that will help you make the most of whatever happens with the economy next year. You can and should prepare a rainy day fund and diversify your portfolio, for example, so that you're not caught by surprise in the case of an eventual downturn.
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