What are the global stock market predictions for 2020, and what are the stock market trends? These are some of the most frequently asked questions I am hearing from clients.
Reports in the media that there is going to be another stock market crash is one of the gloomiest stock market predictions. I’ve even had one of my clients on the phone recently stating that he was “ready to press the button on the market right now” and sell everything.
There are no specifics for what defines a stock market crash but it’s generally accepted that it’s a sudden drop in prices for most investments or shares in stock markets. A stock market crash can be localised but what most investors fear is a global stock market crash.
So, what is the stock market forecast and the market predictions for 2020?
An old Chinese curse declares “May you live in interesting times”; the times and markets are interesting with a major lurch towards technology and the massive reductions in the cost of energy, all of which should influence your investment selections.
What clients want to know more than anything is which investments should they reduce to avoid losses and where the best place is to invest profitably in 2020.
The practice of studying the long- and shorter-term moving averages of stock market indices is well established – Coppock indicators are a good example. Using such indicators, it is possible to establish trends in the market and potential breakthroughs before prices rise or fall.
We prefer to base our investment recommendations on a similar but more sophisticated system, but with the addition of market intelligence. How has this turned out in practice?
So far this year we have recommended gold collectives, biotech and technology as areas in breakthrough.
We provide general stock market and investment updates at frequent intervals via our newsletters; it’s worth looking at extracts from the newsletters to assess the success of our approach.
November 2019 – discussing the yield curve
If you invest for the long-term, such as holding gilts or bonds, you would normally anticipate a higher rate of return than if you’re investing for the short-term.
When there is a possibility that economic growth will slow, the bond market anticipates interest rate cuts and starts to buy longer-term bonds, so much so that the yield curve inverts. This indicator has been a precursor of previous economic recessions.
Typically, a recession will occur three to eighteen months after the yield curve inverts and, during that time, there is often a “melt-up” when the bull market climaxes in a final burst, reaching a new high before collapsing.
This is where we were with the investment markets in November, with all the major markets likely to break to new highs, aided and abetted by a massive infusion of capital from the Federal Reserve into the market.
It’s times like these when investors need to be wary and avoid media “noise” about what is perceived to be happening and to seek out informed advice about what is really happening in the stock markets around the world.
That is best achieved by studying the price movements of the various stock market indices and keeping an eye on the interaction of the short-, medium- and long-term averages; this often provides direction and a strategic way forward.
Avoid fake news such as search engines blocking negative stock market forecasting that may be the reason why many investors were encouraged to move monies out of safe-haven investments and re-invest in risk investments.
At this point the gold price was in reversal to its trend mean; despite this, we felt that gold was in the early stages of a bull market and it remained firmly in our model portfolios.
December – several advisory sources indicate that caution is required with the stock market
A glance through the pages of most Sunday newspapers will provide very little of real benefit to investors. Indeed, very poor financial advice given to me a long time ago, combined with insatiable curiosity, was what brought me into this business.
Years ago, I would read anything and everything financial and investment-related. These days, to maintain my interest in what really matters, I pay for good research and restrict my reading to trusted, intelligent sources.
One of the world’s largest hedge funds, Bridgewater, made $1.5 billion options bet on a falling market, yet the founder insisted that the firm’s overall position on the market wasn’t negative. We felt that this was a hedging strategy, rather than a true short.
Others pointed to the Elliot Wave theory, the basis of which being that a bull market uptrend is made up of five waves: three up and two down.
Each wave has its own personality: the first two waves are a sharp up and down because the confidence isn’t quite there. Wave Three, the longest and most dynamic phase, is hopefully where you are fully invested.
In Wave Four, there is hesitation as the smart money starts to leave but latecomers still pile in.
Wave Five is the final surge of the market.
The US stock market (S&P 500) was at the top of its most dynamic phase (Wave Three) since the complete uptrend began in 2009. Followers of this theory predicted that the US stock market might drop by about 25% and then rally at least 46%.
Yes, we should be more cautious but in the absence of any firm evidence, one should rely upon the price movements of markets indices as a more reliable indicator.
What were the price trends indicating right now?
Global stock markets were all trending higher and the broadly based secular bull market was intact. Most markets were breaking out of their sideways ranging and look poised to go higher.
There was a massive amount of liquidity being pumped into the US monetary system to stimulate growth. Ultimately, this will be highly inflationary, so investors seeking an inflation hedge will look to hold physical assets such as property (although property is fully valued) and gold.
Although I reported recently that gold was in a short-term retracement, the trend reversed, and we believed that the price would move higher still.
Advances in technology have greatly enhanced the prospects for shares in biotech, which have been ranging for some years. The share prices were making little headway due to fears of the very high cost and length of time (often six – seven years) to get any new treatments for existing conditions through the approval system.
Using new technology to develop new cures (rather than improving on existing treatments) is shortening the approval time. Commercialisation of new therapies is taking three years, instead of six – seven years or longer.
With the very high cost of maintaining healthcare for our aging population, anything that speeds up the delivery of new cures or assists lowering costs is welcome. Biotech is still a sector with high potential.
Our recommended gold fund performance
Chinese New Year – The year of the Rat (or The Year of the Coronavirus)
The Chinese New Year on 25 January ushered in the Year of the Rat. For the Chinese, the combination of the Year of the Rat coinciding with a lunar new year is normally a powerful indicator of change for the better.
Then the outbreak of the Coronavirus was announced, virtually cancelling New Year celebrations for the Chinese, which for us would be like cancelling Christmas.
The MSCI China and Hong Kong’s Hang Seng indices pulled back sharply as fears gathered over the spread of the virus. Things may seem a little grim in the Year of the Rat, but some commentators have stated that the uncertainty and fear of events unfolding in Wuhan provide a buying opportunity.
I found such speculative thoughts quite distasteful, as the number of cases linked to the disease continued to mount, along with the incidence of infection outside of China. Much depended on the severity and duration of the outbreak, but it was bound to have an economic impact beyond the tragic cost in human lives.
Most investors look at their portfolios and if they are in profit, they are happy and if they are in loss, they’re sad.
But that’s not how to judge the market, you need to add context.
Currently almost all markets have broken out and accelerated upwards above their long-term moving averages.
The market bounced back after suffering a negative dip. So was it back to business as usual? There are always dangers of mean reversion, which can lead to most markets taking a big drop.
To summarise, most markets enjoyed a wide over-extension to their moving averages which would normally indicates that the markets are in bubble phase.
If infection rates of the Coronavirus were to rise further, that would be the trigger for further volatility, we would suggest that now is the time for clients move monies into alternative assets.
February – a warning of possible stock market collapse
“Kiss me, Hardy!” These are rumoured to have been the last words of Horatio Nelson, a warning that he was about to die. There will be no such warnings from the investment markets; the market was now in a speculative bubble.
As of 20 February, prices of the large technology companies were at very wide “over bought” extensions to their long-term averages. The “clever” money is already in the market but in a short while, the media will catch on – and the innocent investing public will join the bandwagon – only to suffer losses when the market collapses.
Where was all the money coming from to propel this market madness? Some of it was coming from the “Carry Trade”, which involves borrowing money against a weak or zero yield currency and using that money to speculate on investments on markets that are increasing. This type of trade relies upon the weak currency making losses and the speculative investments going even higher.
The “Carry Trade” conditions were made possible as a result of the “Financial Repression Policies” of the developed economies; they were all printing money like it was going out of fashion and reducing interest rates to either very low or in some cases, negative yields. The resultant follow-up of inflation will erode some of the value of debts that they are creating.
This speculative investing was ignoring the negative effects of the Coronavirus, which was now impacting Asian economies. Yet at this critical economic time, Japan introduced a consumer tax: no wonder the Yen is under pressure (like the Euro)!
Against this market backdrop, what could clients do to preserve their capital? Individual investors could join in the market frenzy and hope to catch the top of the market. But is that wise?
The definition of currency is that it is a store of value and can be easily traded. As governments around the world have their currency printing presses in full swing, this can only erode the value of their paper or fiat currency.
A sensible and logical choice is to consider buying gold: the only true currency.
We suggest that you take advice as to whether this is a suitable investment for you.
Gold recently completed its base formation and was rising in value against all currencies; this is normally when gold tends to do well.
In our opinion, gold will become the primary hedge against inflation and the speculation of equities.
On 12 February the Dow Jones, Nasdaq & S&P 500 were at highs and on 19 February, the Nasdaq and S&P 500 were at all-time highs.
Following the warnings expressed in our newsletter, on 21 February I gave a talk to my network group and advised them to talk to their financial advisers about moving out of equity investments into safe havens.
Between 24 and 28 February, global stock markets suffered their largest falls since the financial crisis in 2008.
Our proactive portfolio service over one year
March – concerns about the Coronavirus
The world was reeling from the impact of Coronavirus, with people becoming nervous about what may happen to them and their families.
It was estimated that 60-70% of the population would be infected. Most would suffer only mild symptoms; in our newsletter, we provided guidance for clients on how to protect themselves and their families.
Fear was prevalent, not only about health but also fears about job security and the ability to pay bills. And then there were also fears about the investment markets.
I pointed out in recent newsletters that extended valuations (above the long-term averages of the market indices) meant the market was due a pull back.
By March, investment markets were oversold, so we may soon be due a recovering rally, however the S&P 500 would need to put in an acceleration to rally from the 1000 moving average level to the 200-day moving average and hold.
The more likely scenario is that any rally would be short-lived, and it would then probably reverse back to the 1000 day moving average. If it drops below this, we are headed for a further downward correction of the market.
A small number of clients believe that they should sell up and put everything into cash. That, in my opinion, would be a disaster for a number of reasons:
- Capital variation in equities can be extremely upsetting but selling at or near the bottom is seldom correct.
- The Coronavirus – although devastating – is likely to be temporary, but dividends are longer lasting.
- Given the massive monetary stimulus that has already been introduced into markets PLUS the even more gargantuan monetary stimulus needed to cope with the aftermath of the Coronavirus – the loss in value of fiat currencies is likely to be of a similar proportion to the losses in equities, although it won’t be immediately apparent.
The good news – a rally is overdue.
Gold miner collectives have been sold to raise cash but should still be considered, despite the recent sell off, gold is likely to rise in value and so are the shares of gold miners when they report their profits.
Back to the Future – what are our global market predictions?
This is an evolving market, if you need to know where the best place is to invest in 2020, we suggest you seek out an advisory source that can identify investment trends in 2020 and over the years ahead.
Technological innovation is likely to continue, with technological advances moving at a pace and some technology shares may surprise on the upside.
Biotechnology is at the forefront of providing cures for chronic conditions that can only be treated currently.
Autonomous vehicles are almost upon us.
Progress is being made into finding a low-cost energy source.
Precious Metals and Commodities are a reasonable choice for most investors.
How do all these and tumultuous changes created by the impact of the Coronavirus relate to your investment portfolios?
If you are an investor with over £500,000 of investable assets and would like a second opinion on your investment and pension portfolios, please do contact us by clicking HERE.
Good luck and keep yourself safe.
The extracts from our client newsletters have been edited to maintain a narrative. You should be aware that the advice in our newsletter represents our thoughts and opinions at that time and may not be relevant now. Our recommended gold fund for example is 62% higher than when we first advised clients six and a half months ago.
Any statements and opinions provided encapsulate the thoughts, opinions, and beliefs of Ray Best. If you are in any doubt, you should always seek individual advice.
Past performance will not necessarily be repeated in the future, but you should be aware that persistent poor performance invariably will.
We often include investment trusts in our recommendations; investment trusts use borrowings to increase assets under management, which is referred to as “gearing”. Investment trust prices are often at variance to the value of the assets held. If the price is above the net asset value of the trust this is referred to as a premium and if the price is less than the net asset value, then the trust is said to be at a discount.
Unit prices can go down as well as up.
Rabix Ltd is directly authorised and regulated by the Financial Conduct Authority (440577).
Rabix Ltd trades as UnaVida Life Planning (which means “one life” in Spanish).
The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.