{"id":8487,"date":"2020-02-04T16:53:34","date_gmt":"2020-02-04T16:53:34","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=8487"},"modified":"2022-02-26T13:06:46","modified_gmt":"2022-02-26T13:06:46","slug":"4-risks-for-investors-in-2020","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/4-risks-for-investors-in-2020\/","title":{"rendered":"4 Risks for Investors in 2020"},"content":{"rendered":"\n<p>When it comes to assessing risk in the economy and equity\nmarkets, I have a good guiding principle: <em>if\npeople are ignoring a risk and talking about it infrequently, that\u2019s a signal\nwe should be paying close attention to it and talking about it more<\/em>. <\/p>\n\n\n\n<p>To be sure, history suggests that real risks are rarely ones\nthat come out of nowhere and shock the world. They are usually hiding in plain\nsight, but they get overlooked because investors are chasing profits or riding\ngains in the stock market. The 2000 tech bubble and 2008 financial crisis offer\nclear examples of these exuberance-driven blind spots.<\/p>\n\n\n\n<p>I don\u2019t think we are\ncurrently in an environment where investors are overconfident \u2013 the wall of\nworry is still plenty strong, in my view. But I do think there are a handful of\nrisks that are not being adequately acknowledged, which ultimately gives them\nmore pricing power. Here are four I think you should watch in 2020:<\/p>\n\n\n\n<p>_____________________________________________________________________________<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_2_03&amp;content=stock_market_outlook_report \">Stay Steady &amp; Focus on Fundamentals!<\/a><\/strong><br> \u00a0<br> Before I dive deeper into these potential risks, I want to point out how important it is to keep an eye on economic indicators as opposed to making emotional, knee-jerk reactions. This can be difficult to do, especially in the midst of so many negative news stories. To help you do this, we are offering all readers a look into our just-released February 2020 Stock Market Outlook report.<br> <br> This report will provide you with our forecasts along with additional factors to consider:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>U.S. returns expectations for 2020<\/em><\/li><li><em>What Produces 2020 Optimism?\u00a0<\/em><\/li><li><em>What of U.S. GDP Growth?<\/em><\/li><li><em>Is it time to buy U.S. stocks in January?\u00a0<\/em><\/li><li><em>Will the \u201cU.S. China Trade War\u201d remain a stumbling block in 2020?<\/em><\/li><li><em>Small-cap vs. large-cap returns<\/em><\/li><li><em>And much more.\u00a0<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<br> <br><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_2_03&amp;content=stock_market_outlook_report \">IT&#8217;S FREE. Download the Just-Released February 2020 Stock Market Outlook<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_2_03&amp;content=stock_market_outlook_report \">1<\/a><\/sup><\/strong><\/p>\n\n\n\n<p>_____________________________________________________________________________<\/p>\n\n\n\n<p><strong>1 &#8211; The Return of Inflation<\/strong><\/p>\n\n\n\n<p>The\nlatest inflation reading from December 2019 confirmed what has been the case\nfor the better part of the entire decade: <em>inflation\nremains in check. <\/em>The consumer price index showed a year-over-year increase\nof +2.3% in December for all goods, largely in line with the Federal Reserve\u2019s\n2% target.<sup>2<\/sup> <\/p>\n\n\n\n<p>For the decade,\nprices climbed at their slowest pace since the Great Depression, which I would\nargue was driven partly by technological advances (which put downward pressure\non input costs, production, and cost of goods sold) and largely by the massive\namount of spare capacity created as a result of the 2008 financial crisis and\nrecession. While the costs of many consumer goods continue to decline or remain\nsteady, other sub-sectors have experienced rapid inflation, such as medical\ncare and the cost of education. As you can see in the chart below, inflation\ngrowth has not been this slow since the 1960\u2019s, but that period was also\nfollowed by a significant inflation spike <strong><em>that few expected<\/em><\/strong>. In my view, one\nof 2020\u2019s surprises could be that inflation rises at a faster clip than many\nexpect (though nowhere near what we saw in the late 1960\u2019s). The risk might be\nframed as: <em>what will the Fed potentially\ndo to respond?<\/em>&nbsp; <\/p>\n\n\n\n<p><strong>History of Inflation 1960 &#8211; Present<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/2_image-1-of-2-1024x395.png\" alt=\"\" class=\"wp-image-8488\"\/><\/figure>\n\n\n\n<p><strong><em>Source: Federal Reserve Bank of St. Louis<sup>3<\/sup><\/em><\/strong><\/p>\n\n\n\n<p><strong>2 &#8211; Rising Costs Hamper Earnings <\/strong><\/p>\n\n\n\n<p>Consensus here at\nZacks Investment Management is that we should see a ~8% rebound in S&amp;P 500\nearnings this year, following a slightly negative year of earnings growth in\n2019.<sup>4 <\/sup><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/motm_0120-003-1024x862.png\" alt=\"\" class=\"wp-image-8489\"\/><\/figure>\n\n\n\n<p><em>Source:\nZacks.com<sup>5<\/sup><\/em><\/p>\n\n\n\n<p>The risk to the\nearnings story, in my view, is a confluence of two factors. <\/p>\n\n\n\n<p>The first is\ntariffs, which in spite of \u201cPhase 1\u201d of the trade deal with China are still\nlargely in place. The Trump Administration has also threatened tariffs on our largest\ntrading partner, the European Union. I\u2019m not convinced that the negative impact\nof existing tariffs have been fully absorbed in the US economy, and\nmultinationals could start seeing cost pressures soon.<\/p>\n\n\n\n<p>The second factor is wage pressure. Low unemployment combined with a skilled labor shortage (and weak productivity), could put upward pressure on wages. Since labor is the biggest expense for most companies, the end result could be a squeeze on profit margins and lower-than-expected earnings results. Downward earnings revisions and lower-than-expected results are not great for stocks, in my view. <\/p>\n\n\n\n<p><strong>3 &#8211; US Presidential      Election Unrest<\/strong><\/p>\n\n\n\n<p>The run-up to\nthe 2020 US presidential election is almost certain to be noisy, messy, and\nexhausting. In my view, the risk is not about whether President Trump is\nre-elected or whether a Democrat wins <strong>\u2013<\/strong> i.e., the risk is not political\nwhatsoever. In my view, the risk is in the election itself. <\/p>\n\n\n\n<p>All signs point to continued pressure from foreign actors to nefariously interfere in the election, and the divisiveness and tightness of the race could create a great deal of unrest about whether the results are authentic. The uncertainty surrounding how the election will unfold could weigh on markets, particularly if the nation is divided on who the winner actually is. <\/p>\n\n\n\n<p><strong>4 &#8211; The U.S. and China Accelerate Their Decoupling<\/strong><\/p>\n\n\n\n<p>The world\u2019s two\nlargest economies are clearly at odds. But recent escalations have led both\nnations into more isolationist approaches as it relates to technology, talent\n(labor), and investment. We now have a situation where China is aiming to\ncompletely cut off US technology suppliers, instead shifting focus to a \u201cLong\nMarch\u201d towards building their own technology infrastructure. As the Eurasia\nResearch Group put it, China is building a \u201cdigital Berlin Wall.\u201d<sup>6<\/sup><\/p>\n\n\n\n<p>As the US and\nChina compete for market share in selling semiconductors, cloud services, and\n5G to the rest of the world, countries will likely have to decide which side of\nthe \u201cwall\u201d they want to be on. To the extent that technological innovation (5G,\nA.I.) will drive the global economy forward in the next decade or even century,\nthe next year or two could be critical in establishing the playing field. <strong><\/strong><\/p>\n\n\n\n<p><strong>Bottom Line for\nInvestors <\/strong><\/p>\n\n\n\n<p>Perhaps the biggest risk not mentioned above is the risk that investors get too euphoric about rising stock prices. Euphoria leads to the \u2018blind spots\u2019 I mentioned above, where investors start paying less attention to risk and instead start believing the economy will expand and the market will go up indefinitely. That\u2019s when investors start overpaying for risk assets, and valuations drift too high, in my view. Keeping an eye on the aforementioned risks this year will be important, but I think our main focus should be watching investor sentiment. <\/p>\n\n\n\n<p>To help you get a deeper insight into these potential risks and other key economic indicators, check out our\u00a0<strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_2_03&amp;content=stock_market_outlook_report \">Just-Released February 2020 Stock Market Outlook Report.<\/a><\/strong><br> \u00a0<br> This Special Report is packed with newly revised predictions to consider for 2020 that can help you base your next investment move on hard data. For example, you&#8217;ll discover Zacks\u2019 view on:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>U.S. returns expectations for 2020<\/em><\/li><li><em>What Produces 2020      Optimism?\u00a0<\/em><\/li><li><em>What of U.S. GDP Growth?<\/em><\/li><li><em>Is it time to buy U.S. stocks in January?\u00a0<\/em><\/li><li><em>Will the \u201cU.S. China Trade War\u201d remain a stumbling block in 2020?<\/em><\/li><li><em>Small-cap vs. large-cap returns<\/em><\/li><li><em>And much more.\u00a0<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report on fundamentals, earnings, growth, and innovation today!<sup>7<\/sup><\/p>\n","protected":false},"excerpt":{"rendered":"<p>From the return of inflation to the upcoming election, investors should keep an eye on these risks in 2020<\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71,1],"tags":[],"class_list":["post-8487","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group","category-uncategorized"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8487","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8487"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8487\/revisions"}],"predecessor-version":[{"id":10645,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8487\/revisions\/10645"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8487"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8487"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8487"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}