This could be the year the decade-old stock market rally fades.
That, in a nutshell, is how local investment advisers see 2020 shaping up.
With the stock market rally already in its 10th year – about three years older than the average rally – and share prices already on the higher end of the valuation scale, a panel of local investment advisers surveyed by The Buffalo News is predicting flat to modest gains for stocks this year.
“This is the longest bull market in American history,” said David Hartzell, the president of Cornell Capital Management, a Clarence money management firm. “The only question is when it will end.”
Still, the stock market has some things going for it, the advisers said. Interest rates should stay low. Inflation should remain subdued, and the economy should keep growing slowly. Those are all positives for a stock market that in 2019 shrugged off uncertainty from a trade war with China and the impeachment of President Trump.
“I think the China tariffs, the trade war and impeachment are all nonevents,” said Tim Johnston, the president of Sandhill Investment Management, a Buffalo investment advisory firm.
As a result, most of the eight local investment advisers surveyed by The Buffalo News expect only modest gains this year, with the average forecast calling for a 5.1% rise in the Dow Jones Industrial Average and a 5.3% increase in the Nasdaq Composite index. Individually, the advisers have vastly different views.
Kevin E. McKenna
Main Line Capital Management
2020 Dow forecast: 28,500, down 0.1%
2020 Nasdaq forecast: 9,000, up 0.3%
Why the market will rise/fall: “I expect the market to see significant volatility over the next 12 months,” McKenna said. While presidential election years historically are good for stocks, worries over an escalation in the trade war and slowing profit growth could hold back stocks after a decadelong rally.
Watch out for: High corporate debt levels and slowing sales growth have reduced share buyback and merger activity. IPOs also have slowed. “With these early indications of a slowing trend, we should soon begin to see indications of a recession, if not simply a very quiet expansion period.”
Steven A. Gattuso
Director of asset strategy,
Courier Capital Corp.
2020 Dow forecast: 29,000, up 1.6%
2020 Nasdaq forecast: 9,050, up 0.9%
Why the market will rise: The economy will keep growing slowly, inflation will remain tame and interest rates will stay low. Corporate profits will keep growing, but not rapidly. But stocks are expensive, which will limit their upside.
Watch out for: Rising federal budget deficits are a risk, and the election could have a growing impact on the stock market during the second half of the year. The trade war with China and what happens with Great Britain’s plan to pull out of the European Union also are risks.
Senior vice president,
2020 Dow forecast: 30,251, up 6%
2020 Nasdaq forecast: 9,690, up 8%
Why the market will rise: The Federal Reserve “will be under a lot of political pressure to keep interest rates low during an election year, so we can predict reasonable gains for the year.”
Watch out for: “Inflation could put pressure on the Fed and it may be forced to raise interest rates,” she said. “An international conflict could also create market uncertainty.”
Cornell Capital Management
2020 Dow forecast: 30,500, up 6.9%
2020 Nasdaq forecast: 9,500, up 5.9%
Why the market will rise: Interest rates will stay low, boosting share prices. “The trade war with China should play its way out in 2020, with a trade deal in the offing,” Hartzell said. “Look for both sides to get some, but not all, of what they originally wanted, with tariffs removed on most Chinese products” and the U.S. getting more control over sensitive technology exports.
Watch out for: An overdue correction. “I think it will be a combination of interest rate increase and overinflated stock valuations that will bring this old lady to her knees. But not in 2020. Look for the market to tank in 2021 or beyond.”
Dopkins Wealth Management
2020 Dow forecast: 30,279, up 6.1%
2020 Nasdaq forecast: 9,520, up 6.1%
Why the market will rise: “The election could shape the market next year,” Bohen said. “It seems certain that half of the country will wake up unhappy after Election Day.”
Watch out for: “Short-term forecasts could go wrong,” said Bohen, who favors value stocks and urges investors to focus on the long term. “Seriously, what punishes investors more than anything is reacting to short-term forecasts.”
Sandhill Investment Management
2020 Dow forecast: 28,538, unchanged
2020 Nasdaq forecast: 8,614, -4%
Why the market will be weak: With stocks trading at a pricey 18½-times their forward earnings and the rally in its 10th year, “I’m not bearish, but I’m mindful that we’re reaching full valuations late in the cycle,” Johnston said.
Watch out for: Democrats winning the White House, as well as taking control of the Senate and House of Representatives. “It would significantly change the landscape,” prompting a steep sell-off in stocks and a rally in bonds.
Anthony J. Ogorek
Ogorek Wealth Management
2020 Dow forecast: 30,822, up 8%
2020 Nasdaq forecast: 9,870, up 10%
Why the market will rise: Low interest rates and continued growth in the U.S. economy will keep pushing stocks higher. “The scariest thing about 2020 is that no major obstacles stand in the market’s way,” Ogorek said. “The trade wars are abating – the president needs a strong economy to be reelected – and the Fed will be loath to raise interest rates in an election year.”
Watch out for: “The greatest risk to the market is an exogenous event, something difficult to predict, akin to a cyberattack on a major financial or government institution, or perhaps a geopolitical confrontation or war.”
Gerald T. Cole
Arbor Capital Management
2020 Dow forecast: 31,963, up 12%
2020 Nasdaq forecast: 10,318, up 15%
Why the market will rise: Earnings will rise, but more slowly. Trade agreements, including the USMCA, will be a modest positive for stocks. The labor market is strong, rising productivity is keeping inflation at bay, and consumer spending should remain strong.
Watch out for: Shifts by the Federal Reserve to tighten credit or raise interest rates.