👉Risks & Questions Facing The Stock Market in 2020

The first market sessions in 2020 confirmed the positive trend recorded the previous year. However, some events could lead to a reversal. The first sessions of the stock markets in 2020 were characterized by new highs, accompanied, however, by a return of volatility. Political tensions contributed to the climate of uncertainty. This market remains priced to perfection on artificial liquidity. With liquidity bound to be reduced expanding growth needs to emerge for valuations to be sustainable. The bond markets signals no such growth emerging. Either the bond market has it wrong, or it represents a lurking risk. This tight rope market remain vastly overbought and pushing against resistance but is currently impervious to risk. The next few days and weeks may put this risk free attitude to the test. Key to keep an eye on all of these lurking risk factors. Here's 3 Risks To The Bearish View. The QE Candy . The REPO Fuel. The Rate Cut Cake. Stocks are expensive because the Feds pumped over a trillion dollars into the market and continue to pump billions daily. The FED stops pumping money or even talks about raising rates, say good bye. QE is not an indicator of a healthy economy, but a very weak one. Investing in stocks can be a smart move, but you have to be careful. Welcome to The Atlantis Reports. The first sessions of the stock markets in 2020 were characterized by new highs, accompanied, however, by a return of volatility. In particular, political tensions in the Middle East have contributed to the uncertainty of recent days. Based on this scenario, we indicate some questions that could accompany the equity markets during 2020. In the following analysis, we try to answer each of the questions. Will there be a recession in the United States or globally? No. We believe 2020 should show a continued recovery of economic activity, albeit moderate. We expect growth to remain around trend levels for the main economies, but we believe that the United States could offer a positive surprise . Will the US-China truce on the commercial front hold up? Yes. We expect the recent ceasefire to continue as both sides have strong incentives to avoid further escalation. However, we believe that other "phases" or an all-inclusive trade agreement are unlikely, with the negotiations likely to stop. Will the United Kingdom manage a trade agreement with the European Union by the end of December? No. Boris Johnson has campaigned to "end Brexit" and has not further extended the transition period beyond December 2020. However, we believe that a complete trade agreement is unlikely to be reached in a matter of months. We expect an extension, but we recognize the possibility of continuing with the WTO legislation to continue negotiations from the outside. Will the main central banks remain on hold? Yes. We believe that the Federal Reserve will not need further cuts, given the improvement in the global environment, and that inflation will not increase enough to justify an upward revision. We also expect the European Central Bank to stand by, putting pressure on policy makers on tax support. We believe that the Bank of Japan will continue with an accommodating stance, but will be limited in its actions. The Bank of England may have to cut back to support a fragile economy. Will core inflation rise significantly in the United States? No. Inflation is likely to rise, especially with base effects on oil, but we believe core inflation will remain contained, suggesting that there will be little pressure on the Fed to raise rates. Will politics and geopolitics still be market drivers? Yes. Trade issues are likely to continue to occupy the front pages of newspapers, not only in the United States and China, but also in Europe. With the upcoming presidential elections and various question marks regarding politics in Germany, Italy and France, domestic politics could also become a very important topic. In addition, with relatively clear forward guidance from central banks, they are likely to take second place . Will we see positive equity markets again? Yes. We believe that improving the global environment and reducing the uncertainty surrounding trade and Brexit will continue to act as support for risk appetite, and therefore for equity markets. Greater volatility should persist, as tensions between the United States and Iran demonstrate. Will returns increase significantly? No. We believe that better growth and equally better investor sentiment implies higher yields, but fears of growth will not disappear and, with low inflation, returns will likely remain contained. Will value stocks perform well? No. The recent hike is likely to continue in the short term, which should see assets continue to do well, but we expect that demand for quality stocks will continue, supporting growth stocks and the US market in the medium term. Will the price of oil rise? No. While tensions in the Middle East are likely to continue, suggesting a higher risk premium for oil prices, the supply remains wide thanks to US shale oil, Saudi Arabia and Russia, leading to imagine that there will be no an increase in prices. Growth is unlikely to peak, which should also act as a price cap. The first sessions of the equity markets in 2020 confirmed the positive trend recorded the previous year. However, some events could lead to a reversal of this trend. We have identified some risks that could affect the performance of the main global markets in the coming months, with a focus on different asset classes and geographical areas. Here they are detailed in the following analysis. #1. The growth slowdown. Expectations for growth to resume in the coming months have increased. If the data were instead disappointing, or if it followed a slow trend, we could see fears of recession resurface. Another risk is related to the deterioration of the labor market. #2. Business. The trade truce between the United States and China could prove fragile, or Trump could open a new front with Europe or with other geographical areas. Negotiations between the UK and the EU may not be successful, given the close deadline. # 3. American presidential elections. The upcoming elections will indicate the direction Washington has taken for the next few years, and, depending on the Democratic candidate, they will likely fuel some market concerns. # 4. Liquidity on the credit market. Liquidity on credit markets has declined sharply since the financial crisis, while the debt level has continued to rise in recent years. Any "accident" on the credit market could trigger systemic fears. # 5. Inflationary surprises. Inflation is expected to rise slightly, but a significant surprise could call into question the Fed's accommodative stance and fuel nervousness on the market. # 6. Politics in Europe. Angela Merkel's transition plans in Germany, a fragile coalition in Italy, ongoing protests in France, and negotiations with the United Kingdom could all be on the agenda. # 7. A spike in oil. An increase in oil prices could raise concerns about growth and influence market sentiment. # 8. A tech stock selloff. The technology was one of the driving sectors, so a loss of industry-leading status or practice concerns could impact all markets. # 9. Social unrest. Social tensions are spreading in many developed countries and could have an impact on market sentiment. # 10. Tensions in the Middle East. Tensions in the Middle East have been brewing for some time. A sharp escalation and fears of military intervention would have an impact on risk appetite. #11. China fails to comply with the terms of the “Phase One” trade deal, which reignites the trade war. #12. Earnings growth fails to recover, and valuations finally become a concern for the markets. #13. Corporate profits, which have been essentially flat since 2014, deteriorate due to slower economic growth both domestically and globally. #14. Excessively high consumer confidence converges with low levels of CEO Confidence as employment begins to weaken. #15. Interest rates rise, which trips up heavily leveraged consumers and corporations. #16. Investors become concerned about excess valuations. #17. A credit-related event causes a market liquidity crunch. (Convent-Lite, Leveraged Loans, BBB-rated downgrades all pose a potential threat). #18. The Fed’s “repo-crisis” continues to grow and turns out to be something much more significant. #19. Similar to 2016, a shocking election result. Other risks are . #20. U.S. Economy Remains in an Intensifying Downturn. #21. Despite Headline Unemployment at a 50-Year Low of 3.52%, Broader Unemployment Measures and Employment Stress Levels Still Signal Deep Recession. #22. September Payrolls Gained 136,000 (181,000 Net of Revisions), While Year-to-Year Payroll Growth Held at a Low of 1.4%, Last Seen Going Into and Coming Out of the Great Recession. #23. August Trade Deficit Widened, With Negligible Impact on Third-Quarter GDP Outlook. #24. October FOMC Meeting Should See a 50-Basis-Point Rate Cut and Renewed Quantitative Easing. #25. September Money Supply M3 Annual Growth Jumped to a 10-Year High. #26. Global Populist Uprising Against Neo-Liberalism / Globalization / Corporatism. #27. Global Fiat Currency rejection amid un-coordinated QE (every Central Banker for themselves). #28. Saudi Aramco IPO Disaster. #29. The collapse of the Euro and the Australian dollar are the results of Deutsche Bank's bankruptcy which will continue to create a spreading financial meltdown. #30. The China coronavirus. This one popped on the radar out of the blue and caused some temporary overnight weakness in markets. Why? Because nothing inspires fear like a contagious virus that’s deadly. The world has been lucky to dodge bullets on the infectious disease front for decades. Stunning actually considering how the population has exploded to over 7.5 billion and ever more growing. Never before has the world been so interconnected and the notion of a deadly airborne virus spreading around the globe via air travel is the CDC’s nightmare scenario. AIDS and Ebola have offered scares but are not airborne and hence inherently containable. The Ebola scare in 2015 contributed to market fears coinciding with a market correction. Medical advances over the last 100 years have done wonders to help the world contain spreading viruses. And don’t kid yourself: The risk of a new contagion is always lurking. Viruses are not static, even the flu mutates every single year and brings about new strains. in conclusion: Hold cash. Over long historical periods cash has held its real value through both episodes of deflation and inflation but there is no guarantee that this will be the case in the future. Derivatives. It is worth mentioning that cost and usefulness are often in opposition. The cost of derivatives protection can often be reduced by specifying more precise conditions – but the more precise the conditions, the greater the chance that they are not exactly met and hence the ‘insurance’ does not pay out. Hold a negatively-correlated asset. There is no single asset that will work against all possible bad outcomes. Further, there is no guarantee that the expected performance of the hedge asset will actually transpire in the future event. "He who flies lowest, has least distance to fall." "Hope for the best, plan for the worst." "Make hay while the sun shines." "Save it for a rainy day." Always best to have plans "A", "B" and "C". The last is my own, the first are just old, "common sense" sayings. Our economy is way artificially synthetic at this point. Solid Economic Theory that worked in the past is history. The Markets will stay up as long as the retirement savings are rolling in and transfer of wealth is continuing. The moment people stop feeding the beast, all other supports will be pulled and we will be lucky if the markets only drop 50%. This was The Atlantis Report. Please Like . Share . And Subscribe. Thank You .













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