Market Outlook

2020 Midyear Market Outlook: Policy, Politics, and Populism

June 19 2020

While the coronavirus crisis dominated the policy agenda in early 2020, investors will need to monitor a host of other risks—some potentially worsened by the pandemic—in the second half. These include rising tensions between the U.S. and China, social unrest, opposition to economic globalization, and U.S. elections scheduled in November.

Even before the coronavirus disrupted their operations, the ability of multinational firms to exploit global economies of scale was being challenged by protectionist pressure, Sharps notes. Now, after seeing the pandemic play havoc with supply chains, corporate managers themselves are likely to emphasize resilience over efficiency, even if it lowers profit margins.

  • For corporate balance sheets, this new emphasis is likely to mean reduced leverage, higher liquidity, and more conservative financing practices.
  • Share buyback programs, which have been a key support for equity prices in recent years, could be cut back.
  • At the operating level, “near sourcing”—placement of production in or close to end‑user markets—could become a priority, rather than the search for the lowest‑cost labor markets.

Opening Quote ...investors should expect more gradual recoveries in risk assets—not a continuation of the powerful rallies that lifted markets off their March lows... Closing Quote

The economic benefits are too compelling for globalization to go into reverse, Sharps contends. “But if you add in the ongoing trade tensions between the U.S. and China, a trend toward reevaluating global supply chains seems inevitable.”

Thomson says he is optimistic that the U.S. and China will step back from an escalation in their trade war, easing one potential threat to the global economic recovery. However, he predicts a longer‑term competition for dominance in key technology sectors is likely to produce continued friction between the two economic giants.

Hong Kong, China’s special administrative region, is caught in the middle of these tensions, Thomson says. However, while western critics decry Beijing’s efforts to push through a new security law for the city, Thomson predicts that China will not impose its legal framework directly on Hong Kong as that would threaten the city’s viability as a financial center.

The Pandemic Could Widen the Divide Between Wall Street and Main Street

(Fig. 4) U.S. Wages as Percent of GDP vs. U.S. Stock and Bond Returns

U.S. Wages as Percent of GDP vs. U.S. Stock and Bond Returns

Past performance is not a reliable indicator of future performance.

January 1, 1950, through December 31, 2019.
Sources: FactSet, Standard & Poor’s, Bureau of Economic Analysis, Federal Reserve Board, Tax Policy Center, and Citizens for Tax Justice/Haver Analytics (see Additional Disclosures).
1 Equal‑weighted total return of U.S. equities (S&P 500 Index) and U.S.10‑year government bonds. Provided for illustrative purposes only.  Not representative of an actual portfolio or investment.  Index performance is for illustrative purposes only and is not indicative of any specific investment.  Investors cannot invest directly in an index.

Economic Inequality Could Magnify Social Unrest

High unemployment, social distancing, and the digital divide between those able to work from home and those who’ve seen their incomes destroyed by the coronavirus all could worsen a long‑running shift toward income inequality in the U.S. and other developed countries.

Vaselkiv notes that the pandemic has been especially damaging for lower‑income workers in the service sector, many of them women and/or people of color. This has added to anger over racial injustice and claims of widespread police brutality that have prompted mass protests in many U.S. cities.

The upcoming U.S. election also poses risks for markets, Sharps warns. A victory by Democrat Joe Biden, he says, could lead to increases in both corporate and individual taxes, especially if the Democrats also take control of the Senate. Tighter regulation under a Biden administration could impose heavy compliance costs on energy, financials, and some manufacturing industries, Sharps adds.

Get insights from our experts.

Subscribe to regular email updates and inform your client conversations.

Additional Disclosures

Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The Index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright © 2020, J.P. Morgan Chase & Co. All rights reserved.

Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

ICE Data Indices, LLC (“ICE DATA”), is used with permission. ICE DATA, ITS AFFILIATES AND THEIR RESPECTIVE THIRD PARTY SUPPLIERS DISCLAIM ANY AND ALL WARRANTIES AND REPRESENTATIONS, EXPRESS AND/OR IMPLIED, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, INCLUDING THE INDICES, INDEX DATA AND ANY DATA INCLUDED IN, RELATED TO, OR DERIVED THEREFROM. NEITHER ICE DATA, ITS AFFILIATES NOR THEIR RESPECTIVE THIRD PARTY SUPPLIERS SHALL BE SUBJECT TO ANY DAMAGES OR LIABILITY WITH RESPECT TO THE ADEQUACY, ACCURACY, TIMELINESS OR COMPLETENESS OF THE INDICES OR THE INDEX DATA OR ANY COMPONENT THEREOF, AND THE INDICES AND INDEX DATA AND ALL COMPONENTS THEREOF ARE PROVIDED ON AN “AS IS” BASIS AND YOUR USE IS AT YOUR OWN RISK. ICE DATA, ITS AFFILIATES AND THEIR RESPECTIVE THIRD PARTY SUPPLIERS DO NOT SPONSOR, ENDORSE, OR RECOMMEND T. Rowe Price OR ANY OF ITS PRODUCTS OR SERVICES.

Copyright © 2020, S&P Global Market Intelligence (and its affiliates, as applicable). Reproduction of any information, data or material, including ratings (“Content”) in any form is prohibited except with the prior written permission of the relevant party. Such party, its affiliates and suppliers (“Content Providers”) do not guarantee the accuracy, adequacy, completeness, timeliness or availability of any Content and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such Content. In no event shall Content Providers be liable for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with any use of the Content. A reference to a particular investment or security, a rating or any observation concerning an investment that is part of the Content is not a recommendation to buy, sell or hold such investment or security, does not address the suitability of an investment or security and should not be relied on as investment advice. Credit ratings are statements of opinions and are not statements of fact.

The S&P 500 Index is a product of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”) and has been licensed for use by T. Rowe Price. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by T. Rowe Price. T. Rowe Price’s Midyear Market Outlook is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500 Index.

Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of June 2020 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Investors will need to consider their own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. Investing in technology stocks entails specific risks, including the potential for wide variations in performance and usually wide price swings, up and down. Technology companies can be affected by, among other things, intense competition, government regulation, earnings disappointments, dependency on patent protection and rapid obsolescence of products and services due to technological innovations or changing consumer preferences. Fixed-income securities are subject to credit risk, liquidity risk, call risk, and interest-rate risk. As interest rates rise, bond prices generally fall. Investments in high-yield bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities. International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments. These risks are generally greater for investments in emerging markets. All charts and tables are shown for illustrative purposes only.

T. Rowe Price Investment Services, Inc.

© 2020 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.

Dismiss
Tap to dismiss

Manage Subscriptions

Unsubscribe All
OK

Manage your watched Funds and Insights subscriptions from the mobile menu.

Mobile Watchlist Menu

Manage your watched Funds and Insights subscriptions here.

OK

Change Details

Congratulations! You are now registered.

Begin watching and receiving email updates for:

Ok

Sign in to manage your subscriptions and watch list.

Register

Download

Latest Date Range
Download Cancel

This content is restricted for Institutional Investors use only. We were not able to validate your status as an Institutional Investor with the information you provided at registration.

Please contact the T. Rowe Price Team with questions or to revise your status.

1-800-564-6958

You will need to accept the Terms & Conditions again.

Ok

You have updated your email address.

An activation email has been sent to your new email address from T. Rowe Price.

Please click on the activation link in order to receive email updates.

Ok

You have an existing account

Click OK to view your subscriptions and watch list.

OK

Confirm Cancel