Morgan Stanley venter stærkt aktiemarked i år

Nobody would argue that the stock market isn’t a complex beast, yet for all its volatility, the market often exhibits remarkable consistency relative to its historical behavior.

Sadly, in 2012 and 2016, investors reacted to the drawdowns of the previous years by selling equities into a rising market. Since 1984, there have been only nine years of net outflows from stocks, and these were two of them. Count 2019 as another.

Over that same time period, the year after a net-outflow year—call it “the second year after a pause year”—has always been positive for the Standard & Poor’s 500 Index, as investors capitulated and went back into the market. In 2013 and 2017, investors poured money back, and they were great years for returns. We think 2020 will see a similar dynamic.

The biggest risk for equities this year is if the economy becomes too hot. In that scenario, we worry the Federal Reserve might have to adjust policy in 2021, which could handicap returns down the road, but we doubt it would impact stocks in 2020.

After 2019’s lackluster year-over-year earnings, the bar will be low and thus easy to achieve good numbers. The combination of a President who wants a hot economy going into an election, the Fed pumping liquidity, reduced China trade uncertainty, the United States-Mexico-Canada Agreement and the wealth effect of a good stock market suggests that the surprise could be to the upside.