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Markets for the first quarter of 2020—despite bouts of profit-taking—are poised for growth and better things ahead.

By Quincy Krosby, Chief Market Strategist, Prudential

January 07, 2020

For now, investors should celebrate the “good place” we’re in. As we know, things can change quickly, but for the first quarter of 2020 markets—despite bouts of profit-taking—are poised for growth and better things ahead.

Highlights:

  • U.S. housing could play a key role in GDP growth
  • Global economy should stage a modest recovery
  • Details matter in the “Phase One” China agreement

Throughout most of 2019, Federal Reserve Chairman Jerome Powell characterized the U.S. economy and monetary policy as being in “a good place,” despite an onslaught of criticism from the president. That followed the last rate hike in December 2018, which came with indications that there would be more to come in 2019, perhaps two hikes. Surely, year-end 2018 market performance didn’t point to a good place despite the Federal Open Market Committee (FOMC) December 19 statement that “the labor market has continued to strengthen, and that economic activity has been rising at a strong rate.” By December 24, the market was decisive in declaring that the Fed had made a mistake, and from a sector perspective, the market was bracing for an economic downturn.

On January 4, Powell changed direction, and the Fed pivot increasingly brought us closer to a good place. Instead of rate hikes, 2019 was the year of rate cuts with a “patient” Federal Reserve. And instead of keeping the unwinding of the Fed’s balance sheet on “auto-pilot,” which many astute observers claimed added to a tightening of financial conditions when combined with rising interest rates, Powell said the Fed “wouldn’t hesitate” to adjust balance sheet management if necessary. In less than two weeks the Federal Reserve set markets, and the underlying economy, on the path toward a 2020 “good place.”

An almost daily barrage of headline-grabbing worries faced investors and traders alike as the market climbed the proverbial “wall of worry”: trade and tariff tensions, inverted yield curve concerns with their implications for an economic recession, $17 trillion of negative yielding global debt, global economic slowdown, earnings recession fears, Brexit, global unrest, and impeachment proceedings. Yet global markets, underpinned by global central bank stimulus and the continuation of trade negotiations and agreements, can begin 2020 with the hope that economic conditions are set to rebound, albeit slowly but steadily.

Read Quincy’s full Q1 2020 market commentary: “A Good Place.” PDF (650KB)

The views and opinions are those of the author at the time of publication and are subject to change at any time due to market or economic conditions. This document has been prepared solely for informational purposes. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.

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