World Investment Outlook - Chapter two: USA



Hard to believe as it may be, the November 2020 Presidential Election is not the biggest story in Washington, DC as the New Year begins. Instead, America’s capital is gripped by the impeachment proceedings brought by the Democratic Party against President Donald J. Trump, on two counts, relating to the so-called ‘Ukrainegate’ scandal – abuse of power and obstruction of justice.

Even so, it seems unlikely that the Democrats will be able to turf their Republican foe out of office. They need a two-thirds majority in the 100-seat Senate for that and the Republicans’ 53 seats mean they can frustrate any impeachment vote with ease.

That should, barring any unexpected developments, mean that politicians, press, markets and voters alike can focus on the latest race to the White House. On 3 November 2020, Americans will get to vote for their next President, all 435 members of the lower House of Representatives and 34 of the 100 members of the Senate, the upper chamber on Capitol Hill.

The mid-term polls of 2018 offered some encouragement to the Democratic Party as they took control of the lower House of Representatives on Capitol Hill and there is still no shortage of Democrats looking to their shot at becoming President. Barack Obama’s Vice-President, Joe Biden, Vermont Senator Bernie Sanders (defeated by Hillary Clinton in 2016), Massachusetts’ Elizabeth Warren and South Bend, Indiana’s mayor Pete Buttigieg are leading the pack. The wild-card could yet be Michael Bloomberg, the billionaire who joined the race late in 2019, although his initial poll showings are fairly weak.

The first primaries for both the Democrats and Republicans will be held in early February and the process runs through to the party conventions - Milwaukee, Wisconsin for the Democrats in July and Charlotte, North Carolina for the Republicans. However, Super Tuesday in early March usually proves decisive.

The 2020 race to the White House – key dates

Democrats    Republicans
03 February Iowa caucus 03 February Iowa caucus
11 February New Hampshire primary 04 February New York primary*
22 February Nevada caucus 11 February New Hampshire primary
03 March Super Tuesday: Alabama, Arkansas, California, Colorado, Maine, Massachusetts, Minnesota, North Carolina, Oklahoma, Tennessee, Texas, Utah, Vermont and Virginia primaries   03 March Super Tuesday: Alabama, Arkansas, California, Colorado, Maine, Massachusetts, Minnesota, North Carolina, Oklahoma, Tennessee, Texas, Utah, Vermont and Virginia primaries  
10 March Idaho, Michigan, Mississippi, Missouri, North Dakota and Washington primaries 07 March Louisiana primary
17 March Arizona, Florida, Illinois and Ohio primaries 10 March Hawaii caucus; Idaho, Michigan, Mississippi, Missouri, North Dakota and Washington primaries
28 April Connecticut, Delaware, New York, Pennsylvania and Rhode Island primaries 17 March Arizona, Florida, Illinois and Ohio primaries
02 June Montana, New Jersey, New Mexico and South Dakota primaries 02 June Montana, New Jersey, New Mexico and South Dakota primaries
13-16 July Democratic Convention, Milwaukee, Wisconsin 24-27 August Republican Convention, Charlotte, North Carolina
3 November US Presidential Election

Source: Federal Election Commission, [ITAL] Washington Post [END], [ITAL] New York Times [END].
*Likely to be amended


When looking for the winner of the 2020 Presidential Election it is tempting to rely on the dictum laid down by James Carville, President Bill Clinton’s campaign strategist, when looking to the key issue that will shape the poll result: “The economy, stupid.”

It may not be quite that simple, because if it were the Democrats and not the Republicans would have won in November 2016, but President Trump is still pinning his Presidency on economic growth, as well as (related) hot-button topics such as immigration.

A downturn seems unlikely at the moment, although the rate of progress does appear to be less even, as the sugar rush of the December 2017 tax cuts wears off, the US Federal Reserve’s tightening of monetary policy in 2017-18 makes its presence felt, the dollar holds firm and corporations calibrate production and supply-chain planning in light of the President’s trade and tariff policies.

US GDP growth has become more uneven

Source: FRED – St. Louis Federal database, New York Fed Nowcast estimate for Q4 2019E

Investors continue to hope that the ‘trade war’ with China will be brought to an end in 2020 as Washington and Beijing reach some kind of agreement and there are some grounds for optimism here. In early December, both sides trumpeted a so-called ‘Phase One’ deal, which saw America postpone the imposition of a third round of additional tariffs on Chinese goods. China responded by scrapping plans to impose levies on 850 American products on 1 January 2020.        

However, details of these agreements remain scanty and the key issue of intellectual property protection remains unresolved, so there is scope for many more Presidential tweets on this topic (beside many others) in the New Year.

This may be why the US Federal Reserve stepped in with three, one-quarter-point interest rate cuts in 2019, taking the headline US rate down to 1.75%, having begun the year with a plan to increase borrowing costs, not reduce them. After that policy pivot, Fed chair Jay Powell has now suggested that the central bank has now done enough and investors seem inclined to agree, as the CME Fedwatch tool shows that markets are pricing in more than a 54% chance of no change in the Fed funds rate in 2020.

Markets are not sure whether the Fed will cut in 2020 or not

Source: CME Fedwatch


Whatever the merits of Fed policy when it comes to the economy – and supporters will argue that growth is still better than it is across most of the West, unemployment stands at 50-year lows and wage growth is solid enough at around 3% - there can surely be little doubt that lower interest rates helped to drive money back into the stock market in 2019.

The US stock market, as benchmarked by the S&P 500, provided a total return in sterling terms of 26.4% in 2019, enough to leave it ranked second of the eight major geographic options available to investors, behind only the surprise package that was Eastern Europe.

US equities did well again in 2019

Source: Refinitiv data, based on S&P 500 index. Total returns in sterling terms.

On the face of it, US equities still seem to have three things in their favour for 2020 and beyond:

  • The US could be seen as a pretty safe place to put money, especially as Europe and the UK (still) are wrestling with the implications of Brexit
  • Inflation is benign, central bank policy remains accommodative and low bond yields could yet be driving cash out of fixed-income and into equities.
  • Analysts’ forecasts remain bullish on corporate earnings growth. After the slowdown in late 2018 and early 2019, caused by the base effect that related to the corporation tax cuts unleashed in late 2017, consensus is looking for a reacceleration in momentum. Work from Standard & Poor’s suggests that aggregate earnings across the S&P 500 index will advance by 12% in 2020.

The bear case on US stocks rests largely with valuation. Any shortfall in profits could leave US stocks looking exposed, especially as Professor Robert Shiller’s cyclically-adjusted price earnings (CAPE) ratio puts the S&P 500 on a multiple of 30.9 times. That rating has only been exceeded twice for any period of time, in the late 1920s and the late 1990s, and neither of those episodes ended too well, as if to support the old maxim that markets are never at their most dangerous when making money looks easiest.

Russ Mould, AJ Bell Investment Director

Next chapter

Read more from our World Investment Outlook 2020 series:

World Investment Outlook - Chapter one: UK

World Investment Outlook - Chapter two: USA

World Investment Outlook - Chapter three: Japan

World Investment Outlook - Chapter four: Asia

World Investment Outlook - Chapter five: Western Europe

World Investment Outlook - Chapter six: Emerging Markets

These articles are for information purposes only and are not a personal recommendation or advice.

russmould's picture
Written by:
Russ Mould

Russ Mould has 28 years' experience of the capital markets. He started at Scottish Equitable in 1991 as a fund manager and in 1993 he joined SG Warburg, now part of UBS investment bank, where he worked as equity analyst covering the technology sector for 12 years. Russ joined Shares in November 2005 as technology correspondent and became Editor of the magazine in July 2008. Following the acquisition of Shares' parent company, MSM Media by AJ Bell Group, he was appointed AJ Bell’s Investment Director in summer 2013.