Looking at the Year Ahead With 20/20 Vision!
What will the new year bring for financial markets?
That’s a question on every investor’s mind this time of year as they look ahead to the likely path markets may take in 2020.
Well, according to the finest minds on Wall Street, you shouldn’t expect a repeat performance of 2019. Not even close.
Forecasts Are Downright Gloomy
Wall Street strategists see the stock market gaining about 6% next year on average, according to Bespoke Investment Group.
That’s a far cry from 2019’s year-to-date gain of 23.8% for the Dow Jones Industrial Average. In fact, 6% sounds downright gloomy when compared with this year’s strong gains, but it’s all relative.
First, Wall Street’s smartest guys rarely get it right when it comes to predictions, especially one like this that looks so far ahead.
Second, a closer look at market history over the years tells me that single-digit gains just aren’t that common for the stock market. In fact, a gain of 10% or less for the Dow has only happened 21 times in the past 120 years, or just 17% of the time.
It’s far more common in fact to see the stock market up 10–20%-plus. That kind of gain has happened 48% of the time (or 57 times over the last 120 years).
Fortunately, big losses are rare as well. Stocks have fallen 20% or more just 11 times in the last 120 years, or just 9% of all years.
That all said, these numbers can’t tell you a thing about the likely path stocks take in between.
Here’s the Real Story
As you can see from the chart above, the average stock market drawdown at any point during the year has been 16%. That’s based on data going all the way back to 1928.
By contrast, the biggest drawdown in 2019 was pretty mild, at just 6.4%. On the other hand, 2018 saw a drawdown of 20%, greater than the average.
Also, 2020 is an election year. And it’s a safe bet that next year’s general election could be even more closely contested than the last one, in 2016.
That means more drawdown risk than usual.
The bottom line is that markets are likely to be volatile in 2020.
It’s likely to be a long and winding road to whatever the final outcome for the stock market is.
Keep your safety belts securely fastened at all times.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch