Global Weekly Commentary: Debating our 2020 outlook
Testing the limits
Many drivers of markets in 2019 look to be approaching their limits. We debate what lies ahead at our 2020 outlook forum this week.
We see growth stabilizing but are watching for signs of manufacturing weakness spilling over while central banks likely hold the line.
Euro area data watch
Economic data may confirm a technical recession in Germany, but sentiment data should show signs of euro area growth stabilization.
Chart of the week
Total annual returns of stocks and bonds, 1991-2019
Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index.
Sources: BlackRock Investment Institute, with data from Refinitiv Datastream. November 2019. Notes: Global stocks are represented by the MSCI ACWI index. Global bonds are represented by the Bloomberg Barclays Global Aggregate Bond Index. Total returns are shown in U.S. dollars. 2019 returns are through Nov. 5.
BlackRock’s senior decision makers and portfolio managers gather twice a year to debate the market outlook. One topic likely to come up in our discussions this week: a reversal of fortunes from one year ago, when both stocks and bonds were on track for negative annual returns – a rare event. See the yellow 2018 dot in the chart above. The culprits: uncertainty over trade disputes, late-cycle concerns and tighter financial conditions. At our forum last November, we saw equities and bonds both eking out positive returns this year, the former fueled by the ongoing global expansion and reasonable valuations even in the face of slowing earnings growth; the latter by central banks’ dovish pivot, growth downgrades and subdued inflation. The rebound in both asset classes that we anticipated in our 2019 outlook has occurred, though its magnitude has been more than we expected. See the orange 2019 dot above. We didn’t fully anticipate how much valuation multiples would rise on central bank easing.
Where do we go from here? That’s the question we’ll be debating this week. Our answer will depend on our discussions around the outlook for the economy, policy, and geopolitics. Thanks to a robust global consumer and dovish central banks, we believe the expansion is unlikely to morph into a deeper downturn any time soon. At our 2019 midyear outlook forum, we downgraded our growth outlook due to the protectionist push. We now see global growth stabilizing thanks to a lull in trade tensions and easier financial conditions.
Trade disputes and geopolitical frictions became key drivers of the economy and markets this year (see the November update to our Q4 2019 Global investment outlook). This marked a sharp reversal from decades of increasing openness and injected uncertainty into business planning, weakening economic activity. Yet there have been signs recently that global manufacturing activity may be bottoming and that U.S.-China trade tensions may be abating, at least temporarily. This pause in the protectionist push has helped fuel recent risk asset rallies – and helps keep us moderately pro-risk. A potential wildcard for 2020 that we’ll be debating: The market implications of the U.S. presidential election campaign and its result.
We’ll also be taking a closer look in our forum discussions at the potential next steps in monetary (and fiscal) policy and their investment implications. Global central banks have delivered an unusual late-cycle dovish pivot to extend an already-long economic expansion (see our Nov. 4 Weekly commentary) and combat a drag from rising trade tensions. We will be debating the extent to which this easing story is behind us. Reasons it could be nearing an end: Inflation is creeping higher in the U.S. – and monetary policy has limited capacity to deal with the side effects of trade protectionism. We also believe central banks have little ammunition left to address any future meaningful economic downturn. A key question: how much of a bigger role can fiscal policy play? We see scope for modest stimulus in Europe and China.
Lastly, we will debate the market implications of our base case of stabilizing growth. These include a potential rotation within equity markets away from defensive stocks toward cyclical ones. The investing conclusions from our debates – including our tactical asset allocation views – will be released in our 2020 Global investment outlook on Dec. 9.
General Disclosure: This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of Nov. 11, 2019, and may change. The information and opinions are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This material may contain ’forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.
In the U.S. and Canada, this material is intended for public distribution. In the UK and outside the EEA: This material is for distribution to professional clients (as defined by the Financial Conduct Authority or MiFID Rules) and qualified investors only and should not be relied upon by any other persons. Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: 020 7743 3000. Registered in England No. 2020394. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. In the EEA, it is issued by BlackRock (Netherlands) BV: Amstelplein 1, 1096 HA, Amsterdam, Tel: 020 – 549 5200, Trade Register No. 17068311. BlackRock is a trading name of BlackRock (Netherlands) B.V. For qualified investors in Switzerland, this material shall be exclusively made available to, and directed at, qualified investors as defined in the Swiss Collective Investment Schemes Act of 23 June 2006, as amended. In South Africa, please be advised that BlackRock Investment Management (UK) Limited is an authorised financial services provider with the South African Financial Services Board, FSP No. 43288. In DIFC: This information can be distributed in and from the Dubai International Financial Centre (DIFC) by BlackRock Advisors (UK) Limited — Dubai Branch which is regulated by the Dubai Financial Services Authority (DFSA) and is only directed at ‘Professional Clients’ and no other person should rely upon the information contained within it. Neither the DFSA or any other authority or regulator located in the GCC or MENA region has approved this information. This information and associated materials have been provided for your exclusive use. This document is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution would be unlawful under the securities laws of such. Any distribution, by whatever means, of this document and related material to persons other than those referred to above is strictly prohibited. In Singapore, this is issued by BlackRock (Singapore) Limited (Co. registration no. 200010143N). In Hong Kong, this material is issued by BlackRock Asset Management North Asia Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong. In South Korea, this material is for distribution to the Qualified Professional Investors (as defined in the Financial Investment Services and Capital Market Act and its sub-regulations). In Taiwan, Independently operated by BlackRock Investment Management (Taiwan) Limited. Address: 28F., No. 100, Songren Rd., Xinyi Dist., Taipei City 110, Taiwan. Tel: (02)23261600. In Japan, this is issued by BlackRock Japan. Co., Ltd. (Financial Instruments Business Operator: The Kanto Regional Financial Bureau. License No375, Association Memberships: Japan Investment Advisers Association, the Investment Trusts Association, Japan, Japan Securities Dealers Association, Type II Financial Instruments Firms Association.) For Professional Investors only (Professional Investor is defined in Financial Instruments and Exchange Act). In Australia, issued by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975 AFSL 230 523 (BIMAL). The material provides general information only and does not take into account your individual objectives, financial situation, needs or circumstances. In China, this material may not be distributed to individuals resident in the People’s Republic of China (“PRC”, for such purposes, excluding Hong Kong, Macau and Taiwan) or entities registered in the PRC unless such parties have received all the required PRC government approvals to participate in any investment or receive any investment advisory or investment management services. For Other APAC Countries, this material is issued for Institutional Investors only (or professional/sophisticated /qualified investors, as such term may apply in local jurisdictions) and does not constitute investment advice or an offer or solicitation to purchase or sell in any securities, BlackRock funds or any investment strategy nor shall any securities be offered or sold to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. In Latin America, for institutional investors and financial intermediaries only (not for public distribution). This material is for educational purposes only and does not constitute investment advice or an offer or solicitation to sell or a solicitation of an offer to buy any shares of any fund or security. If any funds are mentioned or inferred in this material, such funds may not been registered with the securities regulators of any Latin American country and thus, may not be publicly offered in any such countries. The provision of investment management and investment advisory services is a regulated activity in Mexico thus is subject to strict rules. No securities regulator within Latin America has confirmed the accuracy of any information contained herein.
The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.
Not FDIC Insured | May Lose Value | No Bank Guarantee
© 2019 BlackRock, Inc. All Rights Reserved. BLACKROCK is a registered trademark of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.
© 2019 BlackRock, Inc. All rights reserved.