Nobody has a crystal ball that lets them predict the future of the stock market, and I’m no an exception. However, it can be fun to think about some of the what-if scenarios.
With that in mind, here are five things most experts don’t think are especially likely, but that I think could happen in 2020. Spoiler alert: My predictions for the coming year are somewhat more negative than they’ve been in the past…
1. The stock market will have a rough year
I’d argue that this is perhaps the boldest prediction on this list. For one thing, the U.S. economy remains strong in terms of wage growth, unemployment, consumer confidence, and pretty much every other metric besides inflation.
And while it’s an election year, it’s worth pointing out that the historic average is a 9.5% gain during an election year. And it doesn’t matter the party. Aside from Barack Obama’s 2008 win, when an awful recession was already going on, you’d have to go all the way back to 1940 to find a negative presidential election year when a Democrat won.
Having said that, I think this year will be different. In addition to the potentially negative stock market implications — higher taxes, tougher regulations, and so on — that could result from a Democratic victory, there are a lot of potentially negative catalysts. The global economy has been slowing, the trade war doesn’t seem to have any clear progress being made, and I don’t foresee any major positive catalysts like “Tax Reform 2.0” on the horizon.
With that in mind, I’m predicting that the S&P 500 will finish 2020 in the red — but not by too much.
2. Warren Buffett will make his biggest acquisition yet
We’ll start with a carryover of a prediction I made last year. At the time, Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) was sitting on a little more than $100 billion in cash, and I predicted the company’s acquisition drought would come to an end.
Well, although Warren Buffett and his team tried to make at least a couple of acquisitions, it just didn’t work out.
In 2020, I’ll take the prediction a step further. Now that Berkshire’s cash hoard has ballooned to $128 billion, I’m going to say that Berkshire will make its biggest acquisition ever in 2020.
3. We’ll see more consolidation in the financial sector
In 2019, we saw BB&T (NYSE: BBT) and SunTrust (NYSE: STI) agree to merge in the biggest financial sector M&A deal since the financial crisis. And just recently, TD Ameritrade (NASDAQ: AMTD) agreed to be acquired by Schwab (NYSE: SCHW).
I think this could be just the tip of the iceberg, and that we’ll see even more consolidation in 2020. The margin pressures coming from the war on banking fees can be somewhat mitigated by the efficiencies of scale, and when it comes to developing new financial technologies, another big component of efficiency — well, two heads are better than one.
I’m not predicting any specific deals, although some of my favorite fintechs, such as Square (NYSE: SQ) and Green Dot (NYSE: GDOT), look like excellent takeover targets, and there are some small- and mid-sized banks trading at very reasonable valuations…
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