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Investors had an easy ride in 2019. No matter what the asset class, be it stocks, bonds, gold or cash, returns were positive and often significant.
In 2020, the story will reverse itself, according to Bob Doll chief U.S. equity strategist at Nuveen. In his 10 predictions for 2020, published Tuesday, Doll argued that “stocks bonds and cash [will] all return less than 5% for only the fourth time in 25 years.”
“We observe that stocks are not particularly cheap at this point, as prices rose considerably in 2019,” Doll wrote. “At the same time interest rates may rise modestly from low levels, which could cause bonds and cash to struggle. Should all this all play out, all three asset classes could return less than 5%, as happened in 2005, 2015 and 2018.”
In 2019, the S&P 500 index SPX, -0.27% returned 31.5% including dividends paid, while the Barclay’s Aggregate Bond index AGG, -0.08% gained investors 5.6% and cash, in the form of short term Treasury bills, earned just over 2% TMUBMUSD03M, +0.32%, according to FactSet data.
Despite his bearishness on asset returns, Doll actually believes the U.S. economy will grow by more than 2% this year, above the Federal Reserve’s estimate of its long-run potential of 1.9%. This economic growth will lead to positive earnings growth in 2020 of between 5% and 6%, after a 2019 when corporate profits were flat.
Helping to keep a lid on earnings growth, however, will be rising labor costs. “As a portfolio manager, I talk to CEOs all the time and their most common complaint is that they can’t find workers,” Doll said during a webcast unveiling his predictions. “If they need somebody they have to pluck them out of some other place and typically pay up for them.”
