2020 Outlook: After a Near-Miss Recession, It’s the Election

We expect rising stock prices, forward earnings, and Treasury yields in 2020, with stable oil prices keeping inflation in check. The presidential election will be the great risk event of the year. Love Trump or hate him, his policies have been pro-growth. Even moderate Democrats want to repeal the corporate tax cuts, which would lower after-tax S&P 500 earnings by more than 10%. The radicals are less likely to win, but more dangerous. Moderates are less dangerous, but still dangerous, and more likely to win. Coming out of a near-miss recession, with a China deal, a Fed no longer too tight, and stable oil prices, accelerating growth should improve Trump’s chances. Virtuous or vicious cycles of “reflexivity” may come into play if expectations for Trump winning or losing feed into economic strength or weakness. Our model shows a comfortable margin of victory for Trump, likely to improve over the year.