We envision another year of positive economic growth and favorable markets, but correcting for evolving uncertainties surrounding the election and geopolitics keeps us agile.


Blurred by the slowdown in global growth, ongoing trade tensions, and partisan political wrangling, investors face issues that can be difficult to read. Our views should help to sharpen the focus on those that matter as we score the evolution of trade, the global economy, and rates.

Overview

Equity Markets

  • The expansion has extended into its record 11th year and the support for further growth, namely consumer spending, remains in place. Our call is for no recession in 2020.
  • A steady domestic backdrop and improving growth overseas should steepen the glide path for corporate earnings.
  • Share prices, in turn, should take their directional cue from rising profits.
  • Foreign equities may prove generous for investors willing to venture internationally. Europe, Japan, and emerging market equities should benefit from reflating global growth.
  • Odds favor another strong year for equity returns, but policy risk via the upcoming election, and a fluid trade situation with China and perhaps others, could upend our sanguine view.

Fixed Income and Interest Rates

  • U.S. fixed income markets delivered exceptional returns in 2019, as interest rates declined and credit spreads remained well behaved for the most part.
  • The Federal Reserve will likely provide two to three more “insurance” rate cuts, which will help compress interest rates further, but by a smaller margin than in 2019.
  • We suggest a higher-quality and longer-in-duration bias for those seeking to limit overall portfolio volatility.
  • We prefer longer-duration (10 to 15 years) high-grade municipals for those that benefit from tax-exempt income.
  • We like least the middle rungs of the high yield corporate sector.

Taxable Fixed Income

  • We anticipate the yield hunt of 2019 to persist, but warn investors against stretching for yield at the expense of their risk budgets.
  • In our judgment, value exists in higher-rated corporate bonds, mortgage-backed securities, and selective emerging market sovereign debt.
  • Certificate of deposit (CD) ladders built inside of five years can help bolster returns above simply holding cash equivalents.

Municipal Markets

  • The recently stronger pace of municipal issuance should continue, with a larger share of bonds of the taxable variety coming to market.
  • The municipal market will be supported by a continuation of strong mutual fund and exchange-traded fund (ETF) inflows, as investors attempt to maximize after-tax income.
  • Steady municipal market credit conditions will persist as state and municipal revenues grow at a healthy pace. We are, however, less comfortable about the higher education municipal bond sector.



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About the authors

Mark Luschini

Chief Investment Strategist, President and Chief Investment Officer, Janney Capital Management

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Guy LeBas

Director, Custom Fixed Income Solutions

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Jody Lurie

Sr. Fixed Income Portfolio Consultant

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