Market Insights

A new decade just started. While history might not always follow neat chapters, the stock market does have phases. Let’s consider some potential trends that could develop over the course of 2020.

Bull Market ‘Goes Mainstream?’

The first big narrative could be that the bull market “goes mainstream” as deep-rooted negativity fades.

After all, investors have endured a ton of risks and survived. Student loans were supposed to kill housing. Brexit was supposed to wreck Europe. The Trump election was supposed to be a crisis. Tariffs were going to end global trade. There was supposed to be a recession.

One by one, these fears have diminished. Now sentiment could turn in just the opposite direction. That’s especially possible if the upcoming election cycle focuses attention on the economy and stock market.

The Federal Reserve is another big piece in the puzzle. Back in 1995, the S&P 500 broke out to new highs after the central bank stopped raising interest rates. The same thing just happened in October. Does that set us up for a repeat of that charmed and prosperous time, the late 1990s?

Will Higher Wages Help Spread Optimism?

Rising wages and strong employment were other ingredients in that bull market. It’s taken some time since the Great Recession, but similar things are taking place today.

Average hourly earnings for non-management employees rose about 3.7 percent in October and November. That’s the quickest in the last decade.

Historically, these cycles last years because people don’t switch jobs often. Wages follow supply and demand much more slowly than other costs in the economy. In other words, we could still have years of rising paychecks.

Legal changes may to support that conclusion. A record 47 states, counties and cities increased their minimum wages last week, according to the National Economic Policy Institute. Almost 7 million workers benefited. Will more follow — especially with elections in November?

Here’s one more thought about employment: Doom-mongers keep warning that robots will destroy millions of jobs. But what if just the opposite happens? What if technology makes lower-wage workers more productive and increases their earning power? It’s happened before.

5G Networking

But then some things have never happened before — especially the kind of insanely fast smart devices we’ll soon get from 5G networking.

As Market Insights has reported, wireless companies are on the verge of investing trillions of dollars in their towers and networks. Semiconductor companies are the immediate beneficiaries. But with speeds 50-100 times faster, there will probably be many other winners over time

Just think of the Internet in the mid-1990s. Companies like Amazon.com (AMZN) had just begun, while Alphabet (GOOGL) and Netflix (NFLX) didn’t even exist yet. 5G — combined with artificial intelligence, holographic technology and cloud computing — won’t just open doors. It will create entirely new doors that most people can’t even see yet.

Chinese Stocks Go Mainstream

Sometimes a market sector goes from being hated to loved. Back at the height of the tech bubble in 2000, no one cared about homebuilders. Five years later, everyone loved them.

The same thing happened with emerging markets in 2003. Investors shunned them initially because of severe acute respiratory syndrome (SARS), but then piled in after the illness passed.

Something similar may be happening now, even if investors are recovering from tariffs instead of a bat virus. And just like in 2003 and 2004, attention may shift toward some positives. There are at least two big ones.

First, China has spent years getting its rules and institutions up to international standards. While there’s still work to be gone, it accomplished a lot before the White House starting hiking tariffs. Once a trade deal’s in place, investors may start to give Beijing credit for its reforms.

Second, big institutions have already started to move. Foreign holdings of Chinese stocks hit a record high above $250 billion at the end of September. That number will probably keep growing as major indexes raise their weightings in the country.

The story is simple: Investors are under-exposed to China given its size. A process of equalizing by indexing firms like MSCI (MSCI) has begun. Unless something unexpected happens, simple mathematics will keep money flowing into mainland Chinese markets for years into the future.

In conclusion, single one-off events like Friday’s attack in Baghdad often grab a lot of headlines. But markets generally follow broader trends over months and quarters. Hopefully this post helps you anticipate some of the bigger stories to watch in 2020.