What to expect in 2020

Free After-Hours Analysis:

This is the time of the year when pundits stand on their soapboxes and tell the world what will happen next year. That said, I will be the first to admit I don’t have a crystal ball and won’t even pretend to guess what economic calamities will or won’t happen next year. But even with that limitation, there are still reliable clues we can use to estimate what 2020 will be like.

2019 was the year of a generous and gentle rally. The market climbed nearly 30% and most pullbacks were benign and prices recovered quickly. This strength was definitely aided by a snapback from 2018’s grossly oversold 4th quarter, but regardless of the source, this was the market’s second strongest annual performance since the dot-com bubble. Unfortunately for us, 2020 will look nothing like 2019. The market almost never repeats a performance and next year won’t be any different. If we cross strong rally off the list of possibilities, that leaves us with modest rally, modest dip, and stock market crash.

While stock market crashes are scary and forever seared into the memory of anyone who lives through one, they are exceedingly rare. Most active traders will only see one or two in their careers. Will next year be one of those years? Probably not. Especially since the market is not grossly overbought or overleveraged like it was during the dot-com and housing bubbles. Stocks are definitely not cheap, but they are not “bubblelicious” either.

Crossing both extremes off the list leaves us with a little up or a little down. At this point, I could see either happening. The labor market is stretched and labor shortages will keep a lid on economic growth going forward. If a business cannot find new staff, it cannot expand no matter how strong demand is. On the other side, modest stock market gains could easily be wiped out if an unpopular Republican president is replaced by a Democrat. Fear of looming regulations and taxes will send stocks retreating in the final months of 2020. And so, that is my prediction, fairly modest gains between 5% and 10% if Trump wins. If he loses, expect a flat year.

But where we end is only one piece of the puzzle. How we get there is even more important to active traders. Everyone knows stocks cannot sit still and like a sugared-up 5-year-old, they always have to be moving. Sometimes they move up for extended periods like 2019. Other times they decline relentlessly like 2008. But most of the time, they move up and down for no other reason than they cannot sit still. 2020 will be a year of moving just because. That means lots of moderate dips and bounces along the way. While it won’t show up in a long-term portfolio, 2020 will be a great year for the opportunistic swing-trader.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM