Hennion & Walsh Trending

By Kevin D. Mahn, President and Chief Investment Officer, Hennion & Walsh Asset Management

2019 was undoubtedly a year where equities exceeded expectations. For the year, the S&P 500 Index (S&P 500) gained over 31% – marking only the fifth time in the last three decades that the S&P 500 finished with an annual total return of more than 30%. As you may recall, our overall theme for 2019 was “Slowing but Growing,” and while this will likely become “Still Slow but Still Growing” in the New Year, we, at Hennion & Walsh, believe that 2020 will be a year marked by three different “E’s” – earnings, the economy, and the election, given the interconnected nature of these three factors.

We believe that earnings will grow in 2020 above their 2019 quarterly results, though fall below the growth rates that were realized back in 2018. Looking at the current consensus S&P 500 earnings-per-share (EPS) forecast for 2020 of 178.5 and applying a five-year average price/earnings ratio (P/E) estimate of 19.8, this would suggest a potential return of around 9% for the S&P 500 through the end of 2020. A dovish Federal Reserve, along with the continued strength of the U.S. consumer and underlying U.S. economy, should allow for this upside potential for U.S. stocks, with the bulk of these forecast gains likely taking place during the first half of 2020.

As we begin the second half of the New Year and enter the thick of the election cycle, periods of intermittent volatility, and overall investor apathy, can be expected as a result of changing predictions of who may, or may not, be in the Oval Office and which political party may, or may not, be in control of Congress after November 3. In this regard, it should be noted that not only is the next President of the U.S. on the ballot in November but all 435 seats in the United States House of Representatives, and 34 of the 100 seats in the United States Senate, will also be contested.

In terms of interest rates, the Federal Reserve (Fed) cut interest rates three times in 2019. Each cut was 25 Basis Points (0.25%) and left the Fed Funds Target Rate in its current range of 1.50% – 1.75% to end the year. While the dovish-leaning Federal Reserve has essentially indicated that they do not anticipate making any additional moves in 2020, away from balance sheet operations, they are adding four new voting members, introducing an element of policy uncertainty in the New Year.

As a result of the outlook and uncertainties described above, we believe that having a diversified strategy that provides appropriate equities and fixed income exposure based on each investor’s particular investment objective and risk tolerance, with some element of downside protection, is worthy of consideration in 2020.

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Disclosure: The accuracy of this information is from sources we believe to be reliable but is not guaranteed.