The world’s leader in managing the ultra-wealthy’s money says that the rich are bracing themselves for a big selloff in 2020. The firm’s clients hold near record level of capital in cash—25%—and think the stock market is going to have real trouble next year. The two major concerns occupying the minds of the ultra wealthy are the US-China trade war and the 2020 US presidential election. The bank got quantitative results on the topic from a recent survey, which received 3,400 responses.
FINSUM: Nobody knows how the market will do next year, and it is never hard to find people that are bearish. This looks like the perfect wall of worry for stocks to climb.
Goodbye bearishness, hello risk-on. JP Morgan took a pivot from the rest of the Wall Street research machine today and took some bold steps in its allocation recommendations. The bank said that investors should take money out of gold and other risk averse assets, like government bonds, and put it into risk assets like stocks. The bank’s strategy team said “We maintain a significant and incrementally larger tilt in our model portfolio towards risky assets, based on signs of a cyclical recovery, easing geopolitical tensions, synchronized monetary easing, and defensive investor positioning across asset classes”.
FINSUM: The clouds do seem to be parting a bit, but there are still a lot of x factors—which is exactly the reason this could turn out to be a very good call.
In what comes as a very worrying announcement for investors, Goldman Sachs has just said that it may be time to cash out of equities. Goldman says that the current mass rotation out of equities and into bonds mirrors what happened before the Crisis. “Decelerating US economic growth, trade and geopolitical uncertainty, and near-record high starting equity allocations have likely contributed to the rotation from equities to bonds and cash this year”, says Goldman. Any steadiness in equities will probably just be artificial. “The peak in buyback activity arrived in 2018 after the Trump administration’s tax cut fueled a wave of repurchase programs. Buybacks are projected to fall 15% in 2019, and drop another 5% in the following year”, Goldman said.
FINSUM: In principle this seems like a sound assessment. The problem is that all the worries Goldman is citing have been on the table for a while and yet stocks have been rising.
Stocks are in an interesting place right now. They are at all-time highs, but at the very same time, there are fears over the economy and trade war. Bearishness seems to be at a peak alongside the market. So what does all of this mean? It means that this may be an ideal environment for the market to keep rising. For those who adhere to the idea that the market loves to climb a wall of worry, there is a perfect wall to climb right now. According to Bespoke Investment Group “When the public has viewed a new high in the market with skepticism (more bears than bulls), the S&P has seen gains over the next year every single time”.
FINSUM: We think the market outlook appears better than worse at the moment. Even if the economy continues to weaken, as long as it does so at a slow and predictable pace, we don’t think there will necessarily be a bear market.
In what comes as a very worrying sign for the global economy, one of the world’s largest economies has just gone into a recession. Germany now appears to be in an economic downturn says the country’s central bank. The Bunbesbank says Germany just shrank for the second consecutive three-month period, meaning it is officially in a recession. The decline in economic output has been led by a strong weakening in the manufacturing sector, but the labor market is still hanging on. This is Germany’s first recession in six years.
FINSUM: Germany is the world’s fourth largest economy. How long until the gloom spreads?