The overwhelming majority of experts stress that the stock market will be highly volatile in 2020. After having analyzed the current risks of the stock market, analysts at Goldman Sachs highlighted four fundamental factors or potential risks for stocks in the present year. Experts are sure that in 2020 these factors will be more influential than ever.
Rise in oil prices due to prolongation of US-Iran conflict
Experts at Goldman Sachs fear that the standoff between the US and Iran may become protracted, triggering another round of growth in oil prices. After Iran's missile strike on US military bases in the Middle East, oil quotes climbed by 5% but later it steadied. According to preliminary estimates, in 2020, the Brent crude will average at approximately $63 per barrel. However, if the conflict between the US and Iran tightens, the stock market will be under pressure.
Surge in US Bond Yields
The second major risk for the security market may be a big jump in US Bond Yields. The current low yield is mostly due to the inflow of investment in stocks, experts emphasize. According to economists at Goldman Sachs, a rise in US Bond Yields has a huge impact on the stock market. 10-year US Treasury Yields are likely to increase to 2.25% by the end of December 2020 unless some significant events, such as the Fed rate hike, interfere. However, this is highly unlikely, experts surmise.
Strengthening of US dollar
Analysts closely watch the movements of the US dollar as the American currency has a great impact on the stock market. Besides, the greenback is supported by a strong US economy. However, 2020 has just begun and it is difficult to predict its trajectory. Earlier, in December 2019, the American currency shed 2% amid the de-escalation in the US-China conflict and a recovery in the world economy. The S&P 500 index that measures the stock performance of 500 large companies may fall by 2%. Taking into account these risks, Donald Trump’s administration will try to depreciate the greenback.
Slow US economic growth
Experts consider the performance of the American economy to be one of the key indicators of global economic growth. The economic development of the US has a direct impact on the global economy. Analysts at Goldman Sachs fear that in the current year, the US economy may lose steam. The latest macroeconomic statistics have been rather mixed. For instance, the ISM non-manufacturing index surpassed experts' estimates, whereas the ISM manufacturing index dropped to record lows over the past 11 years. If the US GDP grows by 2.2% in 2020, experts at Goldman Sachs recommend buying shares of cyclical companies.
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