Will Stocks Rally in 2020? Three Factors to Keep in Mind

January 2, 2020
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Markets reopen today for the 2020 trading year, and many investors will be anxious to see how equities perform. 2019 ended on a high, capping off a year of impressive growth.

The big question now is whether the rally will be sustained. Although there are headwinds like the upcoming election and trade tensions, the overall sentiment is that equities and the economy are in a good place.

Here are three factors that suggest stocks will continue their climb in the first quarter.

The Federal Reserve Will Support the Economy

The Fed’s reluctance to boost the economy in 2018 led to a spectacular decline in stocks before the end of the year. In 2019, the central bank changed its stance and gave the economy a series of quarter-point rate cuts in the second half of the year.

The Fed’s intervention helped to sustain the economy and kept investor confidence high. Conservative cuts mean that there is still room for the Fed to stimulate the economy if it slows further.

Trade Negotiations Could Inspire Corporate Confidence

Corporate spending and lower profits were a problem in 2019. However, with China and the U.S. seemingly making progress on trade, there could be more business confidence this year. This could lead to higher levels of borrowing and investment, which will help to sustain stocks.

Earnings could also grow, as consumer spending is incredibly strong today, thanks to rising wages and a record low unemployment rate.

U.S. Stocks Markets are Strong Across the Board

2019 growth wasn’t just in the big stocks. Small and mid-cap stocks were also up at the close of trading on December 31st. This suggests that confidence is strong right across the board. American stocks have significantly outperformed those in emerging markets, and even in the established economies of Europe and East Asia.

Investors will look at this growth in the context of low unemployment, a growing home market, and a GDP growth rate that’s just over 2.0%. The strength of the stock market reflects the optimism that exists at both private and institutional levels.

Prepare for a New Year of Trading

Signs for the market are good, but it’s important not to miss any of the warnings or changes in market conditions. Investors must manage their portfolios carefully, choose stocks that are more likely to provide growth or dividend returns, and follow the news cycle for economic or political developments.

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