NEW YORK — 2019 delivered double-digit growth and the market seemed unfazed by concerns such as Trump impeachment, Global Slowdown and Trade War. Is 2020 going to be the year when we get the inevitable market sell off or will the market upswing continue? Aadil Zaman and Syed Nishat of Wall Street Alliance Group are of the opinion that investors should get more defensive and have identified 7 key takeaways to consider in 2020.
- Dominant Risks in the Market: The following factors could be the catalyst for a potential market decline. Geopolitical risk is significant as tensions escalate between US and Iran. Although the first phase of US China trade deal is finalized, the next phase of negotiation regarding intellectual property is nowhere in sight. Trump being convicted of impeachment is a low probability event but if it were to occur there would be overall instability in the US. Usually budget deficit is not an immediate crisis, but the US budget deficit ballooned to about 1 Trillion since 2012. In a good economic cycle, spending too quickly may overheat the economy, escalating rising interest rate which can lead to a recession.
- Factors that could cause the rally to continue: The rules and regulations are currently very business friendly and a continuation of these policies will be favorable for the stock market. Inflation risk is subdued, and Fed is expected to be accommodative cutting interest rates through 2020. Those who missed out on the stock market rally in 2019, may feel compelled to rush back in at the beginning of 2020 causing the market upturn to continue.
- Elections will impact Market direction: Historically, Presidential election years tend to be associated with positive stock market returns. The election risk is also imminent and nomination of a candidate who supports reversing back regulations or tax law may create volatility in the market.
- US will outperform overseas markets: Investors should overweight US large cap and lower exposure to international market. International market outlook remains bleak in 2020 due to slow down in China and Brexit.
- Rental Real Estate will do well: The Tax Cuts and Jobs Act of 2017 (TCJA), introduced a new tax break favoring Real Estate owners who can now get a 20% deduction of Rental Income up to a maximum of 2.5% of unadjusted basis of depreciable property as a QBI (Qualify Business income deduction). Rental Real Estate sector will do well because of favorable tax policy along with the rising trend in millennials of preferring renting over buying.
- Sectors investors should be overweight in: Due to increased engagement in social media and digital platforms the advertising spending on this medium will rise causing the sector to do well. With some relief in trade war tensions, the industrial sector will gather momentum and continue its upswing.
- Sectors investors should be underweighted in: Brick and mortar retailers will suffer, and online retailers will thrive as people increasingly value convenience and time saving. Energy sector will underperform due to rising oil inventories and regulatory pressures.
“Since 1946 bear markets have happened at a rate of one bear market every five years and historically the S&P 500 has dropped by an average of 33% during bear markets,” said Syed Nishat, Senior Partner at Wall Street Alliance Group. “If you are concerned about the stock market being overbought then having a certain percentage of the portfolio in cash and fixed income can place you in an ideal situation to buy if the market falls substantially,” said Aadil Zaman, Senior Partner at Wall Street Alliance Group.
About Wall Street Alliance Group- Wall Street Alliance Group is a nationally recognized wealth management firm headquartered in Manhattan, New York. The firm operates on a Fiduciary capacity serving high net worth clients and is on a mission to empower first-generation immigrants achieve financial well-being. Wall Street Alliance has a team of advisors with expertise in areas such as Tax Planning, Estate Planning, Asset Protection, Portfolio Management, 401(k) plans, Defined Benefit plans, Special Needs planning, Physician Financial planning and Trust services. Please visit www.wallstreetag.com.
Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee future results.
