“Every time central banks try to do something, something else goes bad,” Swan says. “Central banks are really just going to be reactive to what markets are pushing them to do.”
Swan says he isn’t recommending anyone allocate to fixed-income instruments in 2020, as projected fixed-income returns will barely be enough to clear inflation. “I don’t see the upside,” he says.
The Elephant, Or Donkey, In The Room
The most concerning narrative for 2020 surrounds the upcoming U.S. presidential elections.
“I think the U.S. elections are a wild card,” Elswick says. “We do see that the markets, both the bond and equity markets, are really beginning to focus on the upcoming elections. I’m not smart enough to attempt to think through all the issues, but I think the election year is most likely going to create a scenario where volatility perhaps rises—which isn’t exactly going out on a limb because volatility is very low today.”
Trade and central bank policy may depend on who the candidates are moving forward, and the prospects for a second term for President Donald Trump.
But the Democratic nomination has become a three- or four-person race, with much of the outlook for the rest of the year dependent on who becomes Trump’s eventual challenger.
Elswick, Swan and Adams say that investors should be concerned if Sen. Elizabeth Warren or Sen. Bernie Sanders becomes the Democratic nominee.
“If Warren or Sanders win the nomination, you’ll see pain in areas like pharma, technology and financials,” Adams says. “If we see a more moderate candidate emerge, we think the impact will be more muted.”
If Sanders or Warren emerge to challenge Trump, China might have cause to expedite a more comprehensive trade agreement, Adams says, viewing the current administration as more accommodative than one led by either of the two progressive Democratic candidates.
Nevertheless, Swan believes that the results of this year’s elections will probably be more of the same.