On the heels of a year marked by double-digit equity returns and strong returns for bonds, experts from across the Natixis family are not asking markets “What have you done for me lately?” Instead, they look to 2020 with an eye on the uncertainty of a US presidential election and elevated asset prices and ask: “What can you do for me now?”

Our survey of 24 strategists, economists, and portfolio managers representing Natixis Investment Managers, its affiliated asset managers, and Natixis Corporate & Investment Banking shows that despite a more positive view on risk assets, their forecasts average out to little movement in markets across the globe.

The Natixis Strategist 2020 Outlook highlights several factors that could be key warning signs along the road to nowhere:

  • A reversal in political fortunes as some modest Brexit clarity pushes European equities closer to the top for best performing asset classes, while a murky view of the presidential election and elevated valuations drop US equities closer to the middle of the pack.
  • An expected rate cut from the US Federal Reserve Bank that could signal that the challenges of slow economic growth and stalled trade talks have not completely eliminated recession fears.
  • A global recession that would reveal just how little ammunition central bankers have left to support the economy after a decade of ultra-accommodative policies and negative interest rates.
“What’s most remarkable,” says Esty Dwek, Head of Global Market Strategy for Natixis Investment Managers Solutions, “is just how clearly the survey results are split down the middle. It seems as though every optimistic outlook is balanced out by a more pessimistic one. While asset class forecasts varied, there was little consensus in terms of bullish versus bearish direction.”

The aggregated view of our strategists shows the challenge many investors will face as the world enters the new decade: economic growth that is positive but hardly above stall speed, valuations that are elevated but not exorbitant, and geopolitical events that could either boost or sap market confidence.

Risk: What could possibly go wrong? Or right?
The US presidential election has replaced a disorderly Brexit as the prominent downside risk in the eyes of our strategists. While a messy Brexit loomed large in their outlook at midyear, it’s been largely taken off the table by UK politics, moving it to the bottom of the list for concern. Opinions were relatively neutral about other downside catalysts, although the likelihood of a US, European and/or global recession ranks third. Similarly, apart from a soft or no Brexit scenario, our strategists don’t expect much upside from external market catalysts either.

Few downside risks on the horizon
Risks final
1 Probability score is the calculated average of the likelihood on a 1–5 scale with 1 being least likely and 5 being most likely.

Few upside catalysts to look forward to
Upside Catalyst final Crop
1 Probability score is the calculated average of the likelihood on a 1–5 scale with 1 being least likely and 5 being most likely.

US presidential election a tossup
While our strategists don’t see obvious shocks – positive or negative – to markets, their outlook is hardly unanimous. On the question of who would win the US presidential election in November 2020, opinions split neatly in half. Fifty percent of respondents project re-election for Donald Trump and the other 50% say it will be someone else. Respondents not citing Trump tend to lean toward Joe Biden, with only one of 12 predicting that Elizabeth Warren – the market’s biggest fear – would prevail.

In a related finding, market forecasts for the S&P 500® were consistently higher for respondents who predicted a Trump victory, while market estimates for those predicting a Democratic victory were all negative. The one respondent forecasting an Elizabeth Warren win also offered the most negative projection for the year-end value of the S&P 500®. Strategists who picked Trump averaged a year-end 2020 target of 3221, a 4.5% gain compared to its level of 3082 at the time of the survey. Also worth noting is that Michael Bloomberg, though a relatively recent candidate (and only a “write-in” choice for the survey), ranks second most likely among Democrats to win after Biden.

Pick ‘em: 2020 US presidential election forecast a tossup
President final

Asset class outlook
Overall, the respondents were more optimistic across assets in general. Bullish/bearish scores were higher on 15 of 19 asset classes compared to our midyear survey. Moreover, equities broadly speaking produced the highest bull/bear scores. It’s likely that fading recession fears since midyear inspired a bit more optimism for riskier assets. However, while confidence has grown, expectations remained muted. Even the most bullish scores were only modestly above “neutral.”

The view on US equities generally held steady but was surpassed by significant upgrades to UK and European equities. Sentiment toward UK stocks improved on hopes for a softer Brexit, while prospects for European equities also brightened, based on more attractive valuations and somewhat greater confidence in the economy. Compared to midyear, the biggest gainers across our bullish/bearish ranking of 20 asset classes were by far UK Equities (rising from #18 to #6), Eurozone Large Equities (from #11 to #2), and Non-US Developed Equities (from #7 to #3). Emerging Market Equity is still beloved, moving up from #2 to the #1 spot.

Of the four asset classes that weakened, only one grew materially weaker. US High Quality / Sovereign Bonds plummeted from the #1 rank at midyear to #15 at year-end as fading recessionary fears took some shine off the safest assets.

Non-US Equity Tops the Chart
Asset Class final
2 Bull-Bear score is the weighted sum of bullish responses (>5) minus bearish responses (<5) for each asset class based on a 0–10 scale (0 = most bearish, 10 = most bullish) with 5 being neutral.

Net neutral on US Equities
On average, respondents set a year-end 2020 target forecast for the S&P 500® at 3,074, implying little change in the coming year (-0.2%) compared to its level when the survey was in field. But opinions were perfectly split: 12 strategists call for higher returns and 12 call for lower. The highest upside projections implied a 9.9% gain, while the lowest projections implied an 11.2% loss.

In focus: S&P 500® strategist year-end 2020 projections

SP 500
Slightly higher volatility ahead
Natixis strategist projections for increased volatility focus on equity markets rather than interest rates or currencies. Respondents forecast a moderate rise in the VIX®, from 12.8 when the survey was in field to 15.5 at the end of 2020. None of the 24 respondents called for a lower VIX® in the coming year. Over 80% of respondents (20 of 24) forecasted higher VIX® while only four expected it to be little changed.

Volatility expectations

In focus: VIX® expected to rise
VIX final

Interest rate cuts
Respondents show strong consensus on Federal Reserve policy. They call for one 25bps cut in 2020, with the fed funds rate dropping from 1.625% to 1.375%. This is slightly lower than a recent Bloomberg survey consensus of 1.60%. Six (25%) forecasted no changes to the fed funds rate in 2020 but not a single respondent expected a Fed hike. Survey responses showed virtually no correlation between overnight rate forecasts and S&P 500® target forecasts, indicating they expect little impact on stock prices from US monetary policy.

No worries about rising rates
Fed Funds final
Nothing left in the tank for central banks

Interest rate policy may not be high on the worry list, but Natixis strategists have clear concerns about the evolving role of central banks. When asked about the greatest challenges facing central bank policy implementation in 2020, the majority of strategists cited "lack of tools" by more than a two to one margin over any other response. With rates already so low in the US and negative in many parts of the world, rate adjustments may be losing some of their former power and it’s not clear what could take their place. This is in line with results from the Natixis Investment Managers 2019 Global Survey of Institutional Investors where respondents also rank a lack of tools as the greatest challenge facing central banks.3

Have central bankers run out of ammunition?
Central Banks final

On the path to 2030
Policy concerns were also top of mind when respondents named the most important investment and economic trend to get right over the next decade. Responses fell into five broad categories, topped by the need to effectively navigate inflation, rates and central bank policy. “Investors around the world are betting on ‘lower for longer,’ so getting the direction of inflation right will be the most important driver of yields over the next 10 years,” said Jack Janasiewicz, Senior Vice President and Portfolio Manager, Natixis Investment Managers Solutions.

A second trend on the horizon centers on climate change and its effects on the global economy. Observations include identifying investment opportunities related to a changing climate that could act as a catalyst or springboard for global growth. An equal number of respondents pointed to the effects of technology and productivity to raise potential growth, while other respondents identified trends in populism and deglobalization that could undermine economic progress.

When asked about the likelihood of specific scenarios unfolding, respondents emphasized slow growth, low rates and accommodative central bank policy as the most likely trends.

Trends for the 2020s
2020 Trends final
1 Probability score is the calculated average of the likelihood on a 1–5 scale with 1 being least likely and 5 being most likely.

Hitting the road
Even if it appears that we are on the road to nowhere in 2020, it’s still likely to be an eventful trip. The route will be determined as much by shifting political fortunes in the US and Europe as by interest rate policy and the ability for central banks across the globe to manage through unforeseen challenges. As seen in the survey results, there are few obvious downside shocks or upside catalysts on the horizon. While the economic status quo remains in place for now, that can turn on a dime. When it’s all said and done, the road to nowhere may take us to more interesting places than we can see today.

About the Natixis Strategist 2020 Outlook
The Natixis Strategist 2020 Outlook is based on responses from 24 experts, including 17 representatives from ten of Natixis’ affiliated investment managers, 4 representatives from 4 operating groups at Natixis Investment Managers, and 3 representatives from Natixis Corporate & Investment Banking:

  • Michael J. Acton, CFA®, Director of Research, AEW
  • Axel Botte, Global Strategist, Ostrum Asset Management
  • Michael Buckius, CFA®, Chief Investment Officer, Gateway Investment Advisers
  • Elisabeth Colleran, CFA®, Portfolio Manager, Emerging Market Credit Team, Loomis Sayles
  • Rafael Calvo, Managing Partner, Head of Senior Debt and Co-Head of Origination, MV Credit
  • François-Xavier Chauchat, Chief Economist and member of the Investment Committee, Dorval Asset Management
  • Esty Dwek, Head of Global Market Strategy, Natixis Investment Managers Solutions
  • James Grabovac, CFA®, Investment Strategist, Municipal Fixed Income Team, Loomis Sayles
  • Brian Horrigan, CFA®, Chief Economist, Loomis Sayles
  • Jack Janasiewicz, CFA®, Senior Vice President and Portfolio Manager, Natixis Investment Managers Solutions
  • Kathryn M. Kaminski, PhD, CAIA®, Chief Research Strategist, Portfolio Manager, AlphaSimplex Group
  • Brian P. Kennedy, Portfolio Manager, Full Discretion Team, Loomis Sayles
  • David Lafferty, CFA®, Senior Vice President and Chief Market Strategist, Natixis Investment Managers
  • Joseph Lavorgna, Chief Economist for the Americas, Natixis Corporate & Investment Banking
  • Maura Murphy, CFA®, Portfolio Manager, Alpha Strategies Team, Loomis Sayles
  • Jens Peers, CFA®, CEO and CIO, Mirova4
  • Cyril Regnat, Head of Research Solutions, Natixis Global Markets Research
  • Dirk Schumacher, European Head of Macro Research, Natixis Corporate & Investment Banking
  • Lynda L. Schweitzer, CFA®, Portfolio Manager, Global Fixed Income Team, Loomis Sayles
  • Christopher Sharpe, Senior Vice President and Portfolio Manager, Natixis Advisors, L.P.
  • Richard Skaggs, CFA®, Vice President, Senior Equity Strategist, Loomis Sayles
  • Hans Vrensen, CFA®, MRE, Managing Director and Head of Research & Strategy, AEW Europe
  • Philippe Waechter, Chief Economist, Ostrum Asset Management
  • Chris D. Wallis, CFA®, CPA, CEO, CIO, Senior Portfolio Manager, Vaughan Nelson Investment Management
1 Probability score is the calculated average of the likelihood on a 1–5 scale with 1 being least likely and 5 being most likely.

2 Bull-Bear score is the weighted sum of bullish responses (>5) minus bearish responses (<5) for each asset class based on a 0–10 scale (0 = most bearish, 10 = most bullish) with 5 being neutral.

3 Natixis Investment Managers, Global Survey of Institutional Investors conducted by CoreData Research October and November 2019. Survey included 500 institutional investors in 29 countries.

4 Operated in the US through Mirova U.S., LLC (Mirova US). Prior to April 1, 2019, Mirova operated through Ostrum Asset Management U.S., LLC (Ostrum US).

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S&P 500® Index is a widely recognized measure of US stock market performance. It is an unmanaged index of 500 common stocks chosen for market size, liquidity, and industry group representation, among other factors. It also measures the performance of the large-cap segment of the US equities market.

The CBOE Volatility Index (the VIX) measures the implied volatility of the S&P 500® Index.

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