Wage growth optimism remains in our top spot for 2020 following strong and sustained gains in the labor market amidst an economic expansion that has been prolonged by fiscally healthy consumers. Competition for skilled labor may intensify, further aiding upside in hourly earnings, which may boost labor force participation.
Consumer health remains a strong point for the year, a fact that has been fueled by the historically strong labor market and overall controlled debt (as a measure of disposable income). There appear to be no active risk catalysts to derail consumers' consumption trends over the next 6-12 months which may provide upside to economic growth.
The global economy may be poised for a sustained growth rate in 2020, fueled primarily by consumer health and a bottoming phase of the global manufacturing landscape. The fundamental backdrop of the U.S. economy remains in a healthy leadership position that does not appear to be inclusive of severe recessionary pressures. Even in the event of neutral growth over multiple quarters, the fact that equity market sector risks, in the form of excessive overvalued bubbles, remain absent from the current cycle, may entail a muted response to downside and steady consumer health. The notion of separating economic health away from equity market returns in 2020 may play a critical role in gauging risks.
The potential for dollar neutrality remains intact for 2020 and the possibility for greater volatility may be amplified over the next 12 months. In the absence of trade agreements, the dollar's movements may signify investors' perception of potential outcomes, which can have a measurable risk/return impact for globally diversified U.S. investors.
Our neutral stance on global equity markets is a function of potentially neutral annualized earnings and increased uncertainty, tied to the presidential election and trade talks. The fundamentals of corporate balance sheets remain healthy and are a strong catalyst for justified gains if objectivity drives equity market sentiment, a notion that can boost momentum. Increased volatility remains possible yet it's also opportunistic as it relates to the active risk management guidelines within our multi-strategy platform. Maintaining, and actively reassessing, equity market participation may likely prove beneficial as global equity markets near the peak of the current business cycle.
The currently mature labor market is likely to further peak. Net new private jobs may average near 140,000 per month, a lower figure than the previous five-year average. Such a cycle is healthy in the current economic environment and may allow for higher wages to transpire in addition to potential upside in labor force participation.
Risk and Uncertainty
Our top uncertainty for 2020 is tied to trade talks and the subjectivity that can often be extrapolated from the most insignificant news. Such sentiment can sway risk assets disproportionately to both extremes. We remain adamant in our belief that all parties in a trade deal must benefit, not just the U.S. The globalization of retail sales, and especially that of labor, is something that cannot be undone. Outside of trade, potential issues with Iran and North Korea have subsided, yet the unquantifiable risk nature of such geopolitical turmoil may have the ability to halt near-term growth and boost equity market volatility.
The downside trend of interest rates in 2019 is not likely to be repeated over the next 12 months. Accommodative monetary policy may start to consider economic fundamentals as an objective deterrent to avoid further interest rate cuts, a notion we agree with in the absence of true systemic risks to economic growth.
The presidential election remains ripe for new uncertainties. Even if President Trump is re-elected, the notion of stalled trade talks may be further sustained. Under Democratic control, sector specific equity risks remain largely quantifiable in the U.S.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful. International investing involves special risks, such as currency fluctuation and political instability, and many not be suitable for all investors. There risks are often heightened for investments in emerging markets.