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How Might The Market Behave In 2020?

How Might The Market Behave In 2020?

| February 06, 2020
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Another year is in the books, which means there’s been plenty of analysis and predictions of what’s to come. We said goodbye to 2018 with a difficult December where the market dropped drastically due to recession worries, then enjoyed a 2019 full of unexpected, stellar returns. Does that mean we’ll see a repeat performance for 2020 or should we temper our excitement? 

Less Room For Growth

Year after year, we’ve seen this market expansion continue and hit record highs frequently. That’s nothing to complain about, but it does leave us with less room to grow. With such a volatile December in 2018, the markets had plenty of room for improvement in 2019. There simply aren’t as many new heights to reach in 2020 since we are starting near record highs on the tail of a strong year for both stocks and bonds worldwide. Right now, the S&P 500 is trading at 24.8 times its earnings. (1) Last year at this time, it was trading at 16.5 times earnings and the average over the last 2 decades was 17.7 times earnings. (2) That’s why financial experts are not expecting the same kinds of returns we saw last year.

A Strong And Stable Economy

Even though you shouldn’t expect a repeat of 2019’s amazing gains, that doesn’t mean you need to worry. The economy is still growing, chugging along at a modest rate. There is little risk of a recession in 2020, especially with the progress made on U.S.-China trade and the Federal Reserve’s commitment to keeping interest rates low. One of the biggest unknowns for 2020 is how the presidential election will impact the economy, but with a strong foundation, the impact should not be great or long-lasting.

Analysts are expecting continued growth for 2020 and this next decade, though at slower rates than we saw last year. Vanguard forecasts American stocks to return 3.5% to 5.5% gains over the next decade, which is much lower than we have seen recently. (3) Even if gains are lower, they are still expected to be positive.

How Should You Prepare? 

What does all of this mean for you practically? First of all, it is important to remember that no one has a crystal ball and any predictions you hear are merely guesses. No one predicted that 2019 would be the S&P 500’s best year since 2013, (4) and none of us know for certain what the future holds. We are just making educated guesses and there is no guarantee that what we expect will happen.

In light of that, it is important to have a balanced investment strategy that takes into account all possibilities. A well-diversified portfolio designed with your specific time horizon in mind should be able to meet your needs whether the market returns 2% or 20% in 2020. 

The greatest danger in prosperous times like these is for investors to become complacent or greedy and ignore the proven principles of long-term investing. If you want to make sure that your portfolio is prepared for whatever 2020 has in store, the Match Point Financial team is here to help. To get started, call 352-207-8014 or schedule a complimentary phone call using our online calendar.

About Chris

Chris Reed is a financial advisor and the founder of Match Point Financial. Since 2002, he has been helping people make informed choices with their money and pursue their financial goals and objectives. He started his career with MetLife and has continued seeking to provide his clients with the best possible service through A.G. Edwards, UBS, and finally through partnering with Cetera Advisors LLC and forming his own independent firm in 2010. Learn more about Chris by connecting with him on LinkedIn or register for his recent webinar “Are Your Old 401(k)s Collecting Dust and Losing You Money?” here.

Financial Advisor: Securities and advisory services offered through Cetera Advisors LLC, member FINRA/ SIPC, a broker/dealer and a Registered Investment Advisor. Cetera is under separate ownership from any other named entity.

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(1) https://www.multpl.com/s-p-500-pe-ratio/table/by-month

(2) https://www.nytimes.com/2020/01/01/business/wall-street-markets-2020.html

(3) https://www.nytimes.com/2020/01/01/business/wall-street-markets-2020.html

(4) https://www.nytimes.com/2020/01/01/business/wall-street-markets-2020.html

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