It was a stellar year for stock markets in 2019. With the S&P 500 at all time highs, we need to start preparing for what the global financial markets will bring in the new decade. Right now, every investor around the world is examining their portfolio strategies, scanning for potential catalysts, threats, and opportunities. Here are the four markets that promise to stand out in 2020 with breakouts on the horizon.
Despite Bitcoin’s shuffle back below the $10k level, Bitcoin still rallied from $4000 to $7200 YTD. However, cryptocurrency enthusiasts remain disappointed. The asset’s movement is far from the Lambo-minting price-action it once exhibited throughout the ’14-’15 bull market, and regulatory authorities continue to scrutinize over the use of cryptocurrency. Most notably in 2019, the world saw corporations band together to usher in a new age of cryptocurrency with Facebook’s Libra cryptocurrency, and the overseeing Libra Association. However, the project was poorly received by banks and financial regulators, leading to several members withdrawing from the organization. While some International Financial Institution representatives remained open-minded, many were prompt in expressing their opposition.
Despite the seemingly enormous pressure on the crypto market from most regulators, select regulatory authorities – especially within the DACH region in Europe – have made strides in recognizing the public demand for the decentralized assets, and meeting entrepreneurs and innovators half way. Germany recently passed a bill that will allow banks to distribute Bitcoin freely to their clients.
In 2020 we hope to see a new class of cryptocurrency, stable-coins; cryptocurrency pegged to fiat, classified as securities in accordance with existing laws. Moreover, it’s not only important for projects like Libra to be recognized by regulatory authorities, but it’s important for them to be able to remain compliant, without infringing on their own value.
It sounds strange because it is. However, this contrarian pair is in the spirit of an unorthodox strategy that several traders have been using on the U.S. stock exchange; going long on Nasdaq, and short S&P 500. Some believe it to provide a better risk adjusted return.
It’s hard to believe that it’s been almost 3 ½ years since the June 2016 referendum and start of an arduous negotiating process in the United Kingdom’s withdrawal from the European Union. After Theresa May’s departure this year, Boris Johnson became Britain’s third Prime Minister, which was confirmed in the winter election. It looks like Britain will be exiting the EU on January 31st, which will have huge implication for the British Pound, which reached historical lows in July.
A cheap British Pound does benefit industry, but only to the extent of cheaper exports and higher purchase power parity, but the UK is a service-based economy. Due to the trials and tribulations surrounding Brexit, not to mentioned the enormous costs, the UK FTSE 100 index only returned 6%. With the election next week, that small gain may be entirely erased.
In 2020 we look out for a final decision regarding Brexit, and will be examining the real effects that the process has on UK’s economy, and financial market performance.
If there’s one thing certain about the state of the British economy, it’s that everyone has conflicting opinions. Brexit does not have positive short-term implications, however there is a fundamental argument for the UK’s ability to withstand and embrace the upcoming volatility. We may see GBP trading at attractive rates in 2020, making a strong case to go long.
It’s time again for the U.S. to gear up for another exciting electoral season. President Donald J. Trump is running for re-election amidst a scandalous impeachment proceeding, while Michael Bloomberg has entered the running and is setting records in spending. President Trump’s time in office was far from smooth sailing, and with trade tensions running high it’s never been more important to understand who will take Trump’s place as commander and chief. Of particular relevance is Trump’s role within the re-election and the implications that his presidency plays on the trade war. Trump frequently frames himself as America’s best negotiator, constantly claiming to be on the brink of reaching a solution.
At the same time Trump’s trade policy goes hand-in-hand with a dovish interest policy and constant criticism of the Federal Reserve. Donald J. Trump is a strong advocate for lowered interest rates, for a number of reasons; the implications of a lower borrowing cost within high capex industrial sectors affected by the trade war (constituents of the Dow Jones index), and the increased purchase power parity attributable to a weaker dollar as a factor in exports. However, there are also immense downsides to lowered rates. Consumers will be affected by lower savings rates, and a long-run decrease in buying power. US banking powerhouses, such as JP Morgan, and Goldman Sachs, and Bank of America, are also preparing for a slow down. In consideration of the prospect of lower rates, many economists have considered the possibility of eventual negative interest rates (unlikely in 2020). Under the leadership of Mario Draghi, the European Central Bank, was a big proponent of negative interest policy. Negative interest rates mean that banks will charge you on deposits, greatly affecting consumer predisposition to savings, while encouraging borrowing. The stimulus has shown to be affective in countries like Sweden, where Sveriges Riksbank became the first central bank in history to adopt a negative interest rate policy in the fallout of the global financial crisis. Unfortunately, by affecting consumer savings the ECB contributed to an outflow of funds outside the European Union, and mainly, the US.
Falling interest rates and tailwinds of a trade war (hopefully) coming to an end would spell out a big win for industry, however if the trade war escalates for any reason this could send markets in a downward spiral. While, the market rallied to ATHs in 2019, the expectations remain bullish in 2020, and the US indices would offer investors adequate exposure.
IPOs have been a major talking point in 2019, with many not-so-spectacular issues that include Lyft, Uber, and Peloton. Offerings from potential “unicorn” companies have captured the interest of countless analysts and investors, and the sentiment lives on through 2020. The most anticipated upcoming IPOs include Airbnb, Robinhood, and Gitlab. The Saudi Aramco IPO, deserves an honorable mention, setting records as the highest valued IPO in history, with a top price of 32 Riyal, and raising 25 bn USD at a market valuation exceeding $1.7 trillion.
The Saudi Aramco IPO is of great significance to oil and equity markets. In fact, OPEC (Organization of Petroleum Exporting Countries) will be affected, as the company (which is owned controlled by the Saudi government) may be incentivized by price-action valuations to bully OPEC Members into cutting output – some analysts suggest. The IPO also represents a good tool for risk management, as it is estimated that price-action will be greatly influenced by the market price for oil, as it directly drives the company’s revenue. An international listing may follow later in the year, but no details have been revealed so far.
You can expect us to cover and feature newly IPOed companies in 2020, however, here’s a thought; go short. We’ve seen of lackluster IPOs that point to a few misaligned interests on Wall Street. Going Long during the first 90 days (lock-out period for sellers), and then spin on your heels and go short to capture the real market valuations.
The 20s already seem to be full of exciting news, with many trading catalysts already on the horizon you can expect us to keep you posted of the most important events and provide you with the best trading tools possible to take advantage of every moment.
Disclaimer: All investments involve risk, and the past performance of a security, industry, sector, market, financial product, trading strategy, or individual’s trading does not guarantee future results or returns. Investors are fully responsible for any investment decisions they make. Such decisions should be based solely on an evaluation of their financial circumstances, investment objectives, risk tolerance, and liquidity needs. This post does not constitute investment advice.