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The 2020 Rewards v Risks

Source | LinkedIn | Gregory S. Faranello, CFA | Head of US Rates Trading and Strategy at AmeriVet Securities

These are the most unique of times. From articles of impeachment being sent to the Senate to the signing of the Phase 1 deal with China: we are witnessing history in the making. The House Speaker seized her moment this week, and shortly thereafter so too our President. We’ve really never seen anything like this. And the hope is we never do again. 

We always revert to markets. This week’s signing of the Phase 1 trade deal was a very symbolic event for both the United States and China. Whether you agree, disagree, like or not: This is the first President over decades and multiple parties to bring China to the table.

And now the difficult part for the markets: What does it really mean for the economy and Fed? And what the Fed means for the market in 2020 will be more difficult than last year to determine.

THE REWARDS

2019 was filled with a plethora of central bank liquidity. A ton. And clearly short term the Fed has been forced to step in for unanticipated events with the balance sheet expansion. In the end, we do believe economic outcomes matter this year. And thus far the data is coming in very strong in the United States.

US Housing Starts (2000-2020)

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Risk assets are off to a good start in 2020. We spent time toward the end of 2019 offering reasons why the backdrop for 2020 was a good one despite enormous returns for calendar year 2019.

But when you factor in the late 2018 market corrections across both equities and credit, things look good but less stellar. In other words, much of 2019 was spent recovering losses from 2018 (the Pivot).

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