In January, we offered our usual annual set of 10 predictions that were based on our premise that the economic expansion was getting long in the tooth but still had some life left. The coronavirus pandemic changed everything. Amid the height of a new bear market and sharp recession in April, we recast our predictions to provide investors with some new perspective about where things might be heading. We’re going to continue keeping track of (and scoring) both our original and newer predictions through the rest of 2020. At this point, we think conditions will continue improving, but we are also growing more concerned about rising market risks.‚Äč


10 Predictions

A Light At The End Of A Very Long Tunnel
At the start of the year, we expected economic growth to pick up modestly, and were encouraged by seemingly diminishing macro risks, such as trade policy. Conversely, we were concerned by relatively full stock valuations, and thought that market gains could be limited following a strong 2019. The unanticipated coronavirus pandemic and resulting economic and market upheaval threw all of this for a loop. The (mostly) new predictions we offered in April were predicated on our expectation that the crisis would peak in the second quarter, paving the way for a slow economic recovery in the second half of the year. Below, we offer scoring and commentary on our full list of predictions.

1. Original: The world avoids recession in 2020 as U.S. GDP grows over 2% and global GDP grows over 3%.

Update: The U.S. and world experience a sharp, but reasonably short recession with noticeable recovery before year-end.

We didn’t quite get to the twelfth year of the expansion as the outright halt in economic activity pushed the world into a sharp and deep recession. But, so far the evidence suggests that while this will be the deepest recession in post-World War II history, it will also prove to be the shortest.

2. Original: Inflation and the 10-year U.S. Treasury yield end the year above 2% as the Fed stays on hold through the election. 

Update: All-time low yields move higher during the second half, with the 10-year Treasury closing the year above 1%.

The yield on the 10-year Treasury plummeted to record lows amid the heart of the crisis in March, and has since been moving in fits and starts. The yield did get close to 0.9% earlier in the second quarter before falling again and ending the quarter just below 0.7%.1 As economic growth starts to improve, and as investors move back into risk assets, we think bond yields will rise modestly. An increase in the 10-year yield to over 1% would be a sign that the economy is reaccelerating.

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