Tags: mark zandi | tough | year | stocks

Top Economist Mark Zandi Predicts 'Tough Year for Stocks'

By    |   Friday, 03 January 2020 09:15 AM

Investment guru Mark Zandi warns savvy investors that the seemingly endless bull-run stock market may eventually crash into a brick wall sooner than you think because the economy isn’t strong enough to support further lofty increases.

“All of the pillars of the stock market look a bit shaky to me,” the Moody’s Analytics chief economist told CNBC.

“While the economy will be OK in 2020, I think the stock market will have a rougher go of it.”

While he “cites consumer spending, household balance sheets, jobs growth and a housing market as economic bright spots, he also sees slower than expected real GDP growth, a growing federal budget deficit and challenged corporate earnings pressuring the economy,” CNBC said in summarizing a preview of Zandi’s official 2020 projection.

“Businesses are going to struggle with declining margin, and so corporate earnings growth will be flat. Lackluster,” he said.

“The consensus around stock prices is decidedly upbeat,” he wrote in his outlook note. “Few are expecting stock prices to rise as much in 2020, but even fewer are expecting it to be a tough year for stocks. We are,” he said.

Zandi warns the presidential election will also hurt growth.

“The issue for 2020 is going to be the presidential election and the uncertainty that it creates,” said Zandi. “Business people, CEOs looking at that... they’re going to sit on their hands, and investment is going to be weak and soft.”

Zandi predicts the stock market ends the year flat or below current levels as real GDP grows by 2%.

“That’s the average rate of growth we’ve been getting throughout the expansion,” Zandi said. “I don’t think we get much more than that. I don’t see anything driving growth higher than that.”

Meanwhile, Reuters explained that investors enter the new decade with a spring in their step, after watching world stocks add over $25 trillion in value in the past 10 years and a bond rally put $13 trillion worth of bond yields below zero.

There's unease, along with all the euphoria. The current economic cycle is already the longest in U.S. history and a recession looks inevitable in the new decade -- which also will mark 100 years since the Wall Street crash of 1929.

And solutions may need to be unconventional, even more so than the extraordinary policies of negative interest rates and bond-buying that eased the post-2008 global funk.

With those policies maxed out, "in the 2020s it seems inevitable that a world of helicopter money awaits," Deutsche Bank predicts.

That would entail central banks or governments providing citizens with large amounts of money, as though it was being dropped from helicopters, a strategy rejected even by the unorthodox policymakers of the 2010s.

Another radical option under discussion is modern monetary theory, when governments create and spend as much money as needed, so long as inflation stays low.

"Central banks have effectively invited governments to experiment with more unconventional policies," Deutsche said. However, those policies may pile up even more global debt, already at record highs.

So what will markets do?

A decade of rock-bottom interest rates didn't revive growth and inflation in developed nations, but they certainly inflated markets, as prices for bonds, equities and real estate show.

The inequality they spawned have also triggered a widespread backlash against globalization. The result is a de-globalizing world, or as Morgan Stanley puts it, "slow-balisation."

The bank expects tech investments to outperform, in particular smaller internet firms in China, as protectionism hurts larger rivals.

But it predicts less exciting returns -- "a lower and flatter frontier compared to prior decades, and especially compared to the ten years post-GFC (global financial crisis)."

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Investment guru Mark Zandi warns savvy investors that the seemingly endless bull-run stock market may eventually crash into a brick wall sooner than you think because the economy isn’t strong enough to support further lofty increases.
mark zandi, tough, year, stocks
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2020-15-03
Friday, 03 January 2020 09:15 AM
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