Today we have the results of our annual DataTrek Market Outlook Survey, but we will begin by providing a report card on 2019’s survey results. Back in late January 2019, 168 of you kindly filled out our questionnaire. Here is what the DataTrek community got right and wrong about its key 2019 predictions:
Right: relative performance of US stocks versus EAFE/Emerging Markets. More of you thought that US stocks (36% of the votes) would do best in 2019 as compared to Emerging Markets (33%), and EAFE equities (5%). That obviously worked out…
Right: US sector performance. You liked Technology and Financials most, each with 20% of the vote across all 11 S&P sectors. These were 2 of the 3 sectors that outperformed the S&P 500 last year. The third – Communication Services – was not among the top picks, however.
Right: no US recession. Only 26% of respondents gave better than 60% odds of a recession over the next 2 years.
Right: stay away from 2019’s “hot” IPOs. Just 13% said they would buy an Uber IPO and 6% were interested in Lyft. Over a third (37%) reported no interest in any possible unicorn public offering.
Wrong: Federal Reserve policy. Only 11% of respondents thought Fed Funds would be lower at the end of 2019 than in late January.
Wrong: US 10-year Treasury yields. Only 8% said yields would be below 2.5%.
Combine the “right” guesses with the “wrong” ones and you have a concise explanation of why 2019 was so good for, well, everything. Economic growth remained strong enough to keep earnings flat. The Fed cut rates more than expected, and global sovereign yields fell (at times) precipitously, lifting high valuation sectors like Tech and supercharging equities generally. A late year bond selloff allowed Financials to rally strongly on the hopes for better economic growth in 2020.
Now, let’s turn to the 2020 results based on your answers to last week’s survey.
Housekeeping items first:
- We had a total of 228 valid responses. Our social media outreach yielded some wise-guy gaming of the system in an effort to win the Amazon gift card raffle. We have obviously excluded those answers in this analysis.
- As usual for our surveys, the majority of respondents are working finance professionals.
Question #1: Which asset class do you think will perform best in 2020? (Choose one):
- US stocks: 46%
- Emerging market stocks: 22%
- Gold: 14%
- EAFE (non-US developed economy) stocks: 11%
- US long-term (+10 year) Treasuries: 4%
- Cash/T-bills: 3%
Our take: respondents were even surer US stocks can best the field in 2020 than they were in 2019. Also, despite all the chatter about EM and EAFE being set to outperform this year, these were less popular choices. Gold’s third-place position, ahead of EAFE stocks, is also worth noting.
Question #2: Which asset class do you think will perform the worst in 2020? (Choose one):
- Cash/T-bills: 39%
- US long-term (+10 year) Treasuries: 29%
- EAFE (non-US developed economy) stocks: 9%
- US stocks: 8%
- Gold: 8%
- Emerging market stocks: 7%
Our take: the replies are not symmetrical with the prior question, making gold and EM equities look slightly better in terms of respondents’ confidence about their 2020 relative performance.
Question #3: Thinking now about just US large cap stocks (S&P 500), which industry sector do you think will perform the BEST in 2020? (Choose one):
- Technology: 42%
- Energy: 12%
- Financials: 12%
- Health Care: 10%
- Consumer Discretionary: 6%
- Communication Services/Consumer Staples/Industrials: 4% each
- Utilities: 3%
- Real Estate/Materials: 2% each
Our take: Tech makes its expected strong showing, but Energy in second place surprised us. This doesn’t appear to be near-term performance chasing; the group was down YTD during our survey. Health Care near the top of the list during an election year also caught our eye…
Question #4: What do you think will be the yield on the US 10-year Treasury at the end of 2020? (Choose one):
- Less than 1.50%: 8%
- 1.50% to 1.75%: 25%
- 1.76% to 2.00%: 31%
- 2.01% to 2.25%: 29%
- More than 2.26%: 7%
Our take: respondents think the bond rally is over and long rates will end 2020 essentially right where they are today. The distribution of responses shows a pretty even split of survey takers that expect rates to be below the current band (33%) as above (35%).
Question #5: What is your expected return for the S&P 500 in 2020 (Choose one):
- Down +10%: 4%
- Down 5% – 10%: 6%
- Flat (plus or minus 5%): 18%
- Up 5% – 10%: 55%
- Up +10%: 17%
Our take: a pretty bullish reading here, with 72% of respondents expecting at least a 5% return. Only 10% think the S&P 500 will fall by 5% or more.
Question #6: What do you think are the odds of a US recession (2 or more quarters of negative GDP growth) over the next 2 years? (Choose one):
- Less than 20%: 22%
- 21% – 40%: 41%
- 41% to 60%: 22%
- 61% to 80%: 10%
- Better than 80%: 5%
Our take: only 15% of respondents put the odds of a near-term US recession at better than 60%, another upbeat assessment from our survey takers.
Question #7: Where do you think Fed Funds will end 2020? (Choose one):
- Lower than today: 27%
- The same as today: 60%
- Higher than today: 13%
Our take: responses here look much like the expectations imbedded in Fed Funds Futures just now. A majority of respondents think rates will stay unchanged, but the implied odds of a rate cut are 2x larger than a rate increase.
Question #8: When do you think the US and China will come to a phase 2 agreement on trade? (Choose one):
- In the second quarter of 2020: 11%
- In the third quarter of 2020: 20%
- In the fourth quarter of 2020: 12%
- I don’t see further progress this year: 57%
Our take: while more than half of respondents do not think a Phase 2 deal is coming in 2020, if it does happen then Q3 – right ahead of the general election – does make the most sense.
Question #9: Which party do you think will win the White House in 2020? (Choose one):
- Republicans: 77%
- Democrats: 23%
Our take: this is a higher level of conviction than shown on Predictit.org, which makes the race a dead heat at 50/50 odds.
Question #10: How do you think bitcoin will perform in 2020? (Choose one):
- Down more than 20%: 7%
- Down between 11% – 20%: 7%
- Flat – between down 10% and up 10%: 29%
- Up between 11% – 20%: 11%
- Up more than 20%: 17%
- No opinion: 29%
Our take: among respondents with a point of view about the crypto currency, twice as many thought the asset might rally +10% as decline by a similar amount. That said, the most popular choice was for a flat year. Which certainly would be a first…
Summing up: on balance we read the survey results as generally bullish on equities but less so with respect to fixed income. Also, the undercurrent that runs through the responses, with no recession/stable and low interest rates/no election surprises, argues for another year of below-trend equity market volatility. Given the DataTrek community’s good 2019 track record, all this is a reasonable starting point for your own 2020 expectations.
Finally, thanks to all of you who took the survey!