It is not going to be a huge crash, but Morgan Stanley thinks US stocks will struggle in 2020. The bank thinks the US is clearly “late-cycle” and that its growth will wane from 2.3% to 1.8% next year. It believes the Dollar will weaken and stocks will struggle. The bank thinks most of the benefits of the Fed’s rate cuts have already been priced into the market. “In 2020, the economy will grow more slowly as the bulk of the positive lift from lower interest rates will have been absorbed and households balance higher income with higher prices from tariff”, says Morgan Stanley. The bank says emerging markets are likely to outperform.
FINSUM: Of all the forecasts we have seen lately, this one seems the most realistic. We don’t see a big bust coming, but a plateau seems very believable.
Banks across the country are under pressure, and it is starting to show. Four US banks have failed already this year (three in the last month) compared to zero last year. The reasons why are many, but low interest rates and strong competition have been impacting the space. The four bank failures do not seem to be due to a particular asset class, but particular idiosyncratic circumstances. Still, as mortgages have seen lower rates, banks are more and more likely to move into more risky areas to boost yields.
FINSUM: In 2006 there were zero bank failures, in 2007 there were three, in 2008 it was very ugly. We do not think we are going down the same rode, but it is a sign worth noting.
In any interesting twist, President Trump has announced that he may personally testify in his impeachment probe. Trump has indicated he is interested in the idea of being able to set the record straight himself. He says “Even though I did nothing wrong, and don’t like giving credibility to this No Due Process Hoax, I like the idea & will, in order to get Congress focused again, strongly consider it!”. Trump’s comments came at the urging of House speaker Nancy Pelosi’s request for him to testify. The president could testify via writing or in-person.
FINSUM: We doubt this will happen (Trump’s lawyers would probably be remiss in letting him testify in person), but it is an interesting turn. Imagine the media frenzy!
It might seem a bit of an over-exaggeration at this moment, but it is not too far-fetched. Hong Kong is continuing to devolve into ever more violent and disruptive protesting, and the pictures and developments seem to indicate that the situation might be devolving into a kind of disorganized civil war. Protesters have taken siege of the university in the city and the City’s security forces attempted unsuccessfully to forcefully take it back this morning.
FINSUM: What is the mainland going to do here? Things are getting worse and worse.
After what was a great run for much of this year, ETFs investors are fleeing bonds. After yields fell sharply for most of 2019, investors have been stung this month as yields have shot higher. Ten-year Treasuries have gone from 1.7% to 1.9% yields, causing over half of all bonds to lose value. Investors have been pulling billions out of funds as a result. The iShares 20-year Treasury ETF has lost 7.8% since August 28th. One of the areas that has been more durable is high yield, where average prices have risen a little over 1% in the same time frame.
FINSUM: Bonds losing is a sign that investors are getting less worried about a recession, which in our view is an optimistic sign.