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BUSINESS Friday 20 december 2019
A25

After ebullient 2019, Wall Street warns of slower road ahead

By STAN CHOE to drop even lower.
Associated Press Some banks along Wall
NEW YORK (AP) — After a Street have relatively
year of nirvana, investors healthy expectations for
may need to get ready for stocks in 2020 — but few
something a little more nor- if any are calling for a re-
mal. peat of 2019's surge for
Markets are coming off the S&P 500, which was at
a fabulous 2019, where 27.6% as of Thursday morn-
stocks and bonds around ing. Bank of America Merrill
the world climbed in con- Lynch sees the index end-
cert. But for the next year ing 2020 at 3,300, which
— and decade, in fact — would be a 3.2 % rise, for
Wall Street is telling inves- example. Goldman Sachs
tors to set their expecta- is more bullish, with a target
tions considerably lower. of 3,400, but that would still
It's not calling for another be less than a quarter of
crash like the U.S. stock this year's gain.
market suffered just over Stocks are more expensive
a decade ago. Or for an- than a year ago on a host
other run like the last 10 of different measures. One
years, where the S&P 500 of the most commonly
returned more than 13% used is how a stock's price
on an annualized basis. A compares to its profit over
gain less than half of that In this Aug. 7, 2019, file photo trader John Romolo works on the floor of the New York Stock Ex- the preceding year. By
change.
may be more likely, both Associated Press that measure, the S&P 500
for next year and annually is trading at 20.9 times its
for the coming decade. mood in markets was one seeking investors. Low rates historically. Foreign stocks earnings. That's more ex-
"People need to have a of fear. helped stock prices rise in might offer a bit more, at pensive than at the start
more realistic expectation The S&P 500 had tumbled 2019 even as profits fell for roughly 7.5% annually, but of the year, when it was
of what returns are going 19.8% between Sept. 20, many big U.S. companies. U.S. bonds look set to offer at 16.5, or its average over
to be," said Greg Davis, 2018 and Dec. 24, 2018. Along with the Fed, give only 2% or 3% annually over the last two decades of
chief investment officer at Investors were worried credit for the resilient econ- the next decade, accord- 17.7, according to FactSet.
Vanguard. "That means in- that the Federal Reserve omy to U.S. households, ing to Vanguard. Low interest rates should
vestors who are saving for was raising interest rates which kept spending even Of course, any prediction help keep this price-
retirement or for college too far and too fast and when uncertainty about about where investments earnings valuation high,
education will likely need could cause a recession. trade pushed CEOs to hold will end up is only a guess, analysts say. So will a U.S.-
to set aside more, because President Donald Trump's off on their own invest- no matter how educated. China trade conflict that's
returns won't be as gener- trade war with China was ments. "The greatest asset Many on Wall Street came hopefully no longer ramp-
ous as what we've seen also threatening economic in the economy is the con- into this year expecting ing higher, analysts say.
over the last decade." growth. sumer, and the U.S. con- only modest returns given The diminished threat of a
It's not because Wall Street But markets relaxed shortly sumer continues to be on all the worries about inter- recession should keep in-
sees the U.S. economy fall- after the calendar flipped, strong footing," said Mike est rates and a possible vestors willing to pay rela-
ing into a recession, at least when Fed Chairman Je- Dowdall, investment strat- recession. Now, the S&P tively high price-earnings
not in 2020, even though rome Powell pledged on egist at BMO Global Asset 500 is about to close out ratios. But the threat of poli-
that's been a recurring fear Jan. 4 to be "patient." In- Management. its second-best year of the cy changes in Washington,
for much of the last de- vestors took that to mean WHAT'S AHEAD FOR 2020 last two decades. D.C., could act as a coun-
cade. Much of Wall Street the Fed would stop raising Heading into 2020, the But for bonds, the reasons terweight. q
expects the economy to interest rates. Later in the mood is much more giddy, for lower expected returns
chug modestly higher next summer, the Fed would go but Wall Street is trying to are easy to see. Bonds
year. even further and cut rates rein in expectations. pay much less in interest
Instead, it's a simple matter three times to shield the Vanguard forecasts U.S. than one or 10 years ago.
of math. Stocks and bonds economy from the effects stocks will return 3.5% to The 10-year Treasury now
don't have as much room of trade tensions and slow- 5.5% annually over the has a yield of 1.93 %, ver-
to rise after their stellar ing economies abroad. coming decade. Even to- sus 2.82% a year ago and
2019, analysts say. Starting They were the first rate cuts ward the top end of that 3.54 % a decade ago. For
points matter, and invest- in more than a decade, range, it's only half what bonds to return more than
ments began this year at and the sharp reversal in the market has returned their yields, rates will need
a low point after recession Fed policy helped relieve
worries pounded markets investors' anxiety about a
in December 2018. U.S. potential recession. Low-
stocks will start 2020, mean- er rates make borrowing
while, close to their highest cheaper and help indus-
levels ever. tries like housing and autos
Plus, one of the biggest in particular, where cus-
reasons for this past year's tomers typically have to
stellar returns — a major borrow to buy.
about-face by the Federal Lower rates also mean
Reserve to cut interest rates bonds pay less in interest,
— can't happen again. which in turn makes the
WHY WAS 2019 SO GOOD? dividends paid by stocks
Coming into this year, the more attractive to income-