Quarterly Capital Market Review & Outlook

U.S. Economic Outlook

  • Economic growth and inflation are expected to remain tame this year. BBVA USA Research is forecasting GDP in 1Q20 will come in around 2.1%, while growth for the year will come in around 1.8%.
  • Expectations have been set high for the Federal Reserve to not raise or lower interest rates this year. It is likely the central bank will maintain its accommodative stance and keep interest rates on hold for the rest of the year.
  • The consumer is expected to drive growth once again in 2020. Manufacturing and business investment should see some stabilization as trade tensions continue to ease between the U.S. and China. However, geopolitical uncertainties may serve as a headwind. 

Equity Outlook

  • 2019 began with experts forecasting recessions and the end of the bull market, but the year ended with record highs seemingly everywhere. Setting numerous records, the S&P 500 ended the year up 31.5% in total return.
  • Congruent with increasingly accommodative monetary policy, the primary source of stock market returns in 2019 was multiple expansion. Looking forward, corporate earnings results will be key in determining the future direction of price multiples. Lower earnings push multiples higher. 

Fixed Income Outlook

  • With moderate economic growth and a pause in monetary policy, yields in the US Treasury market are expected to trade in a fairly tight range throughout the year. The 10-year US Treasury appears to be content to trade in a 1.75% to 2.00% band in the first quarter.
  • In the fourth quarter of 2019, investment grade credit spreads continued to tighten. In 2020, investment grade credit spreads should be able to trade in a relatively tight, but domestic and international political situations may serve as a downside risk.
  • The high-yield sector rallied in the fourth quarter. Movements in the equity market and oil prices should continue to drive performance in the sector.
  • The municipal market posted positive returns for the year. The conditions which set the tone for the municipal market in 2019 are expected to stay intact for 2020. 
Fourth Quarter 2019

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BBVA is the trade name for BBVA USA, Member FDIC, and a member of the BBVA Group. Securities products are NOT deposits, are NOT FDIC insured, are NOT bank guaranteed, may LOSE value and are NOT insured by any federal government agency.

This material contains forward looking statements and projections. There are no guarantees that these results will be achieved.

Investing involves risk including the potential loss of principal. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary.  Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.

Indexes are unmanaged and investors are not able to invest directly into any index.

International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.

Investments in stocks of small companies involve additional risks. Smaller companies typically have a higher risk of failure, and are not as well established as larger blue-chip companies. Historically, smaller-company stocks have experienced a greater degree of market volatility than the overall market average.

Equity investments tend to be volatile and do not involve the guarantees associated with holding a bond to maturity.

In general, the bond market is volatile as prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

The investor should note that vehicles that invest in lower-rated debt securities (commonly referred to as junk bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. The investor should be aware of the possible higher level of volatility, and increased risk of default.

Municipal bond offerings are subject to availability and change in price. If sold prior to maturity, municipal bonds may be subject to market and interest risk. An issuer may default on payment of the principal or interest of a bond. Bond values will decline as interest rates rise. Depending upon the municipal bond offered, alternative minimum tax and state/local taxes could apply.

The price of commodities is subject to substantial price fluctuations of short periods of time and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated and concentrated investing may lead to higher price volatility.

Investments in real estate have various risks including possible lack of liquidity and devaluation based on adverse economic and regulatory changes.

Other Sources: Bloomberg; California.gov; Russell.com; First page index returns are calculated on a total return basis using the following indexes: S&P 500 (SPX), MSCI World (MXWO), MSCI Emerging Markets (MXEF), BofA Merrill Lynch U.S. Treasuries 1-10 years, BofA Merrill Lynch U.S. Agencies 1-10 years, BofA Merrill Lynch U.S. Corporates 1-10 years A-AAA, BofA Merrill Lynch U.S. Municipals 1-10 years A-AAA, Russell Top 200 Index, Russell 1000 Index, Russell Midcap Index, Russell 2500 Index, Russell 2000 Index, Credit Suisse High Yield Index (CSHY), MSCI U.S. REIT Index (RMZ Index).