5 Key Themes That Will Drive Markets in 2020 | ETF Trends

By Sage Advisory

Sage’s base case going into 2020 is a market environment characterized by stabilizing growth, low inflation, and continued monetary and fiscal policy support. The following are five themes that will impact market performance in 2020.

To listen to Sage’s 2020 market outlook podcast and how we are positioned for the first half, click here.

1. The U.S. Consumer – The domestic household sector remains the engine of U.S. economic growth. Household debt service capabilities are the healthiest they’ve been in over 30 years, and the labor force continues to expand, with the unemployment rate continuing to fall to cycle lows.

Household Debt Service as percentage of income

2. The Trade War – 2019 was a year of de-escalating trade tensions, culminating in a “phase one” trade deal between the U.S. and China. Easing of trade tensions was a contributing factor in the late-year rally. If the status quo holds, trade issues should remain in the background. A quiet period of trade rhetoric would dampen volatility and lift economic sentiment.

US Equities vs US China Trade Events

3. Central Bank Accommodation – After years of balance sheet contraction due to tighter monetary policy, global central bank balance sheets expanded in 2019, as global central banks enacted easy money policies in the face of slowing economic growth. Central banks are not expected to change policy course in 2020, which should continue to provide support to financial assets.

Council on Foreign Relations Global Monetary Policy Tracker

4. Corporate Earnings — A recovery in economic activity coupled with low inflation will be required for strong corporate earnings growth. Although corporate profit margins are at a 30-year high, inflation could raise costs and negatively affect corporate profitability.

Corporate Profit Margins

5. The Presidential Election — Over the past 90 years, equities and fixed income have typically fared well during presidential election years, with 19 of 23 election years resulting in positive equity returns and 21 of 23 years resulting in positive returns for U.S. Treasuries.

S&P 500 and Treasuries Returns (23 Presidential Elections 1928-2016)

  S&P 500 Total Return 10Y U.S. Treasury Note Total Return Election
1928 43.81% 0.84% Hoover vs. Smith
1932 -8.64% 8.79% Roosevelt vs. Hoover
1936 31.94% 5.02% Roosevelt vs. Landon
1940 -10.67% 5.40% Roosevelt vs. Willkie
1944 19.03% 2.58% Roosevelt vs. Dewey
1948 5.70% 1.95% Truman vs. Dewey
1952 18.15% 2.27% Eisenhower vs. Stevenson
1956 7.44% -2.26% Eisenhower vs. Stevenson
1960 0.34% 11.64% Kennedy vs. Nixon
1964 16.42% 3.73% Johnson vs. Goldwater
1968 10.81% 3.27% Nixon vs. Humphrey
1972 18.76% 2.82% Nixon vs. McGovern
1976 23.83% 15.98% Carter vs. Ford
1980 31.74% -2.99% Reagan vs. Carter
1984 6.15% 13.73% Reagan vs. Mondale
1988 16.54% 8.22% Bush vs. Dukakis
1992 7.49% 9.36% Clinton vs. Bush
1996 22.68% 1.43% Clinton vs. Dole
2000 -9.03% 16.66% Bush vs. Gore
2004 10.74% 4.49% Bush vs. Kerry
2008 -36.55% 20.10% Obama vs. McCain
2012 15.89% 2.97% Obama vs. Romney
2016 11.77% 0.69% Trump vs. Clinton
  S&P 500 10Y U.S. Treasury Note
Average (Election Years) 11.06% 5.94%
% Positive (Election Years) 82.6% 91.3%
Average (All Years) 11.36% 5.10%
% Positive (All Years) 72.5% 81.3%


This article was contributed by the team at Sage Advisory, a participant in the ETF Strategist Channel.

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our web site at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.