I'm Phil Orlando, Chief Equity Strategist at Federated Investors.
What is Federated's 2020 outlook for equities?
We've got a constructive view of the equity market in calendar 2020, and I think the base case is that our proprietary recession dashboard has expected no recession in calendar 2018 or 2019, or 2020. The earliest that we'd expect to see a recession is the middle of calendar 2021. Importantly, we've had a non-consensus view that economic growth and corporate earnings growth will enjoy a resurgence starting somewhere in the middle of calendar 2020. We think the Federal Reserve is on hold, no more changes in monetary policy . We think inflation remains benign. The core PCE, in our view, will stay at or below the Fed's two percent target. So when you pull all of that together, we think the S&P 500 could rally up to about the 3500 level by the end of calendar 2020. That would imply about a 10% increase.
What are the potential pitfalls for the economy next year?
In a word, China. So our base case has been that this ongoing China-U.S. trade dispute, which has been dragging on for almost two years, is not gonna get any worse. And in fact, may get slightly better at the margin. That we exchange some modest tariff relief for increased exports to China in terms of agricultural commodities and energy. The so-called skinny phase one deal. The risk, of course, is that that doesn't happen. And if the trade deal doesn't happen and conditions deteriorate between the two countries, that we increase the tariffs, we exacerbate the rhetoric, and that reduces CEO confidence, CapEx spending goes lower, productivity growth goes lower, that will have a negative impact on GDP growth and corporate earnings growth. That is not our base case, but certainly, that's a pitfall that we're watching for.
Views are as of 12/12/2019 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Capex: Capital Expenditures Personal Consumption Expenditure (PCE) Index: A measure of inflation at the consumer level. S&P 500 Index: Is an unmanaged capitalization-weighted index of 500 stocks designated to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Federated Advisory Services Company 19-30203 (12/19)