What a year 2019 turned out to be! After the dramatic drop in the markets during the fourth quarter of 2018, many analysts and prognosticators predicted the end of the current bull market. Once again, market behavior proved them wrong. 2019 turned out to be one of the best performing years in quite some time with returns of well over 20% for both the Dow and the S&P 500. Granted, the Spring and Summer of 2019 both saw dips that made many investors doubt forward momentum, but upward long-term trend movement prevailed.

Now that 2019 is behind us, where could the markets head from here? Scherschel Wealth anticipates that 2020 should be another minimally positive year for the markets but that the total return for the major indices will most likely not reach the elevated levels of 2019. At best, we foresee the end of 2020 to deliver returns for the Dow and S&P 500 somewhere between 3 to 7 percent. At worst, our assessment would leave the two indices flat or near zero gains for 2020. What could be the reasons for the lowered estimates compared to 2019? Let’s consider several factors that could lead to an indeterminate, meandering market for 2020.

On the horizon, we take note of the following events that could lead to market volatility and increased uncertainty for this year:
• Middle East tensions that could possibly flare up leading to escalating oil prices.
• Barring any major global catastrophe, we confidently see a second Trump term established which could lead to stability in the markets due to policy continuity. However, the Democratic opponents may introduce much volatility from policy proposals until the November election is settled. We see this subduing the market for the first three quarters of the year.
• Continued and perhaps final implementation of Brexit.
• Potential for a Winter market correction due to the parabolic upward trend of the major indices in the fourth quarter of 2019.
• Gold appears to have formed a bottom and looks to be in a solid uptrend for the near future. It could provide a potential area to reduce portfolio volatility in 2020.

While passive management outperformed active management over the past four to five years, it is the opinion of Scherschel Wealth that 2020 and subsequent years will require a shift toward active and tactical management to outperform the markets. Increased volatility and the length of the present economic expansion lead us to believe that the outlook for years beyond 2020 are not as promising as have been the past four years.

As with any trend, the longer that it remains in place, the more likely it is such trend will succumb to a major disruption. Those investors who choose to remain complacent in the comfort of the passive upward activity of the past several years might be in for a rude awakening as tides begin to shift in the undercurrents of the markets and across multiple sectors.

For 2020, Scherschel Wealth recommends taking a more active approach to trading by taking advantage of investing during coming corrections or broad market dips. Our positioning holds a high allocation toward cash at this time in the anticipation of a Winter correction which could present a better buying opportunity. Positioning your portfolio for such a move may be the tactical strategy necessary this year to outperform the markets.

Our opinion views the current secular bull market to be intact for at least another two years with the usual seasonal dips or corrections along the way. Beyond 2022, market behavior is anyone’s guess. After 2022, Scherschel Wealth would caution any investor from weighting their portfolio into any particular concentration of assets.

Rather it is our view that, at that future date, a much more conservative and balanced portfolio would be called for with a strong allocation toward cash reserves kept on hand for a potential market crash of the scale seen in 1987, 2001 or 2008. But for now, the yearly outlook still appears to be business as usual.

If you seek financial advice or are uncertain about your investment portfolio, Scherschel Wealth would be pleased to offer you a complimentary analysis. Please contact Louis Scherschel to discuss further.

LinkedIn 2019 4th Quarter Investor Newsletter – The 2020 Outlook

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