That may be best for investors, said Randy Swan, founder and lead portfolio manager at Swan Global Investments, where he runs $4 billion of hedged equity strategies.
“Every time central banks try to do something, something else goes bad,” said Swan. “Central banks are really just going to be reactive to what markets are pushing them to do.”
Swan mentioned that 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 said.
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 wildcard,” said Elswick. “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 with just over two weeks until February 3’s Iowa Caucuses, 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 said that investors should be concerned that 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,” said Adams. “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, said Adams, 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.
“You have to ask yourself, ‘Is it possible for one party to get the presidency and a supermajority in the Senate?’ And yes, it is possible but it’s not very likely,” said Swan. “Neither party can get their agenda done without a supermajority, so no matter who wins the election, it’s probably going to be more of the status quo.”
See Also: Blackstone's Scott Says It's Time For Caution In Fixed Income Markets