Market Commentary | December 9, 2019

2020 Market Outlook: Global Stocks and Economy

Key Points

  • Recession in some countries is possible, as headwinds from the trade-led slump in output and investment are having unequal impacts around the world. A broad global recession could occur if the manufacturing slowdown spreads to jobs and consumers.

  • An end to the U.S.-China trade war would help, potentially reversing business uncertainty and unleashing investment.

  • Government fiscal policy—such as tax cuts or increased spending—may become more important as central bank monetary policy has become less effective in boosting economic growth.

New heroes are needed 

International stocks’ double-digit gains for 2019 may be attributed to central bankers’ actions, but trade deals and fiscal policies may be the real heroes in 2020.

As central banks shifted to interest rate cuts in 2019, investors drove up valuations for international stocks, believing that these “Guardians of the Economy” could defeat any threat to global growth. In 2020, growth may depend on comprehensive trade deals and fiscal stimulus to reverse the slowdown in manufacturing and business investment. If tariffs are not lifted before businesses cut jobs, it may undermine the consumer spending supporting the world’s economy.

Manufacturing-focused economies, like Germany, are at the leading edge of the slowdown. This may lead to fiscal stimulus, with an increasing number of leaders already announcing new tax cuts and spending initiatives in their 2020 budgets.


International stock valuations are below long-term averages, reflecting 2019’s lackluster global growth and fears of potential weakness ahead. As international stocks tend to be more economically sensitive than U.S. stocks, they may offer more upside potential should growth reaccelerate.

Compared to the past 20 years, global stock markets are now less synchronized with each other, suggesting a globally diversified portfolio may provide effective management of market volatility.

A yield curve inversion can be a negative market signal, as it has often—but not always—preceded global recessions. As importantly, it also has signaled trend reversals in relative performance of global growth and value stocks, international large- and small-cap stocks, as well as U.S. and international stocks. In 2020, new leadership by value, large-cap and international stocks may follow 2019’s inversion.



  • Unless global growth reaccelerates, international stocks may remain stuck within the volatile ranges seen during the past two years, given their high sensitivity to economic conditions.
  • Global stock markets currently are less likely to move in tandem than they did in the past. This lower correlation may make broad global diversification across long-term allocation targets more rewarding than holding a narrowly focused portfolio.
  • Consider rebalancing back to long-term asset allocation targets. Historically, long-term asset class trends have tended to reverse following yield curve inversions—that is, when short-term yields are higher than long-term yields—as happened in 2019.