Hello, I'm Matt Finn, Chief Economist for Old National Wealth Management. Joining me today are two members of our investment strategy committee, Nancy Given and Don Mole. Welcome to both of you, and thanks for being here. Let's talk about our outlook for 2020. We've got a lot to cover, but I'm hoping we can touch on the global outlook, the U.S. outlook, and the stock and bond markets. Don, let's start with you. Can you give us a quick rundown on the global economy and what we can expect for 2020?
Well, global economic growth has slowed and manufacturing output has been declining. New orders of capital goods, a forward-looking measure of equipment demand, faded in the first half of 2019. However, new orders have been showing some signs of improvement. In both Europe and Japan, the rate of decline in new orders is easing. We are seeing orders increase here in the U.S. Our best estimate for 2020 is for an uneven recovery. Developed economies are likely to outperform emerging economies. China may see a modest uptick in economic growth, but risks remain elevated. The U.S. will do most of the heavy lifting if global GDP is going to increase in 2020. We need to see an improvement in corporate earnings if the current market rally is going to carry into next year. From a sector perspective, energy and materials will probably remain weak, and financials and technology will likely outperform.
So, Nancy, we know consumption is a major driver of the U.S. economy. In fact, consumer spending accounts for nearly 70% of our GDP. What are you seeing for next year?
Well, a healthy consumer needs two things. First, the ability to spend, meaning they need to have money, usually wages, in order to buy what they need and want. We are fortunate to have very low levels of unemployment, and wage growth that is averaging 2 1/2 to 3%, so most Americans have the ability to spend. Second, consumers need to have the desire to spend. Right now, consumers are feeling pretty good about their current situation. Inflation is low, interest rates are low, and debt service burdens are manageable. Expectations have fallen a bit, as people are increasingly nervous about the election year, tariffs, and the ability of the economic expansion to continue, but overall, we think elevated consumer confidence and a low unemployment rate are a winning combination to drive the economy forward next year.
Thanks, Nancy. You touched on the election. Historically, or at least since 1948, the stock market has had a negative return only twice during an election year, and only seven times in the year after a presidential election. The average S&P 500 index return during an election year when the incumbent party wins has been 13.3%, and 6.7% even if the incumbent party loses the election. So, Don, let's wrap up with three quick questions. You ready?
Number one, stock market returns, above average, below average, or in line with historical averages?
Recession, yes or no?
And number three, interest rates, higher or lower?
Given the expectation of global interest rates and inflation, we expect interest rates to be flat to lower.
To sum up, although risks and uncertainties remain elevated, we see another year of reasonable investment returns and modest economic growth ahead.
If you'd like to learn more about our outlook for the economy, or if you just want to talk to somebody knowledgeable about your financial situation, please contact your nearest Old National Wealth Management office, and thanks for joining us.
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