Investment guru Gary Shilling warns that four shocks could suddenly jolt the seemingly endless bull-run stock market into a sudden halt.
While other economists and market strategists “believe that a recession has been averted and are relieved that the first phase of the trade deal with China is at hand … we remain cautious,” writes Shilling in his latest Insight report, according to ThinkAdvisor.com.
“Enthusiasm may not have reached the high level that virtually guarantees a bear market in equities, but it’s moving in that direction … A 2020 recession is a strong possibility,” wrote the president of A. Gary Shilling & Co., a New Jersey consultancy
Shilling, also a Newsmax Finance Insider, sees “no glaring excesses that are just begging to be unwound,” but rather several potential shocks that could end the business expansion, ThinkAdvisor said.
- Excessive Debt in China and among U.S. businesses, where BBB-rated corporate debt now comprises more than half of total issues outstanding. A dip below BBB into junk bond territory, which large institutional investors like pension funds are not allowed to own, could “induce dumping of other low-quality bonds in a self-feeding downward spiral,” writes Shilling.
- Trade War Escalation. Shilling does not believe the Phase One agreement between the U.S. and China, which was recently announced, will necessarily prevent another escalation of the conflict. Shilling doesn’t trust Trump, whose “past record of unpredictability” suggests that even the limited deal reached in December may not be completed or will be followed by “anything but more uncertainty.”
- U.S. Consumer Retrenchment and Deflation. “U.S. consumer spending is the only major source of economic strength at home and abroad, so we’re watching it closely to signal the next major moves in the economy and financial markets,” writes Shilling.
- Corporate Profits. A nosedive in overpriced U.S. stocks could precipitate the next recession, according to Shilling.
However, other experts are more upbeat.
For his part, Newsmax Finance Insider Peter Morici says that too many investors bailed out too soon in 2019 and urged investors not to make the same mistake in in 2020
"The U.S. economy is strong and stable and poised to continue growing in 2020. First-quarter growth will take a hit from Boeing's decision to halt 737 Max production, but it should recover nicely the rest of the year," Morici recently wrote.
Recognizing this, investors have poured into cyclical stocks like banks, manufacturers and oil companies as opposed to defensive stocks like utilities and consumer staples. Corporate profits are expected to advance 9.6% in 2020 and that should enable a similar jump for stocks, Morici said.
"Ordinary investors should not try to pick stocks or time the market — they don't have the information to find the next Apple with confidence and they face better odds betting on football than trying to call the next market turn," Morici said.
"Invest in an S&P 500 index fund, and perhaps an international index fund to smooth returns — sometimes U.S. equities do better while other times foreign stocks lead. If you are retired, hedge by keeping about 50% of your money in Treasuries with three- to seven-year maturities."
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