My Top 10 Surprises for 2020

1.        WTI Crude Oil trades back to $70/barrel as green shoots of economic growth worldwide gathers pace and even though shale production picks up again oil trades in $55.00 to $75.00 range with sharp pullbacks in the May to August period.

2.       The US economy shows no signs of a slowdown and despite a steady growth inflation remains tame as defined by the Fed and interest rates don’t move up or down at all. The US economy surprises everyone with above 3% growth rate and an earnings expansion. The Fed stays pat for the whole year with Trump pressurising Powell for rate cuts in the second half of the year aggressively. US 10-year Treasuries trades in a 1.5% to 2.3% yield range.

3.     US risk assets have another strong positive year. SPX racks up another year of double-digit gains (15%-20%) as companies start beating watered down expectations. Russel 2000 outperforms SPX as domestic companies see earnings growth. FANG stocks after a great 1st quarter struggle in the second half of the year over regulatory worries closer to the election. However, they continue to dominate NDX performance outperforming SPX and Russel2k. SPX level of 3000 is never visited again if not visited in the first quarter of the year and intra year draw-downs are limited to maximum of 5% from new highs. Trump wins the 2020 Presidential election by a mile and SPX sees the secular bull market reach new highs and continues its upward trajectory post his victory.

4.  With Brexit done without any trade agreements UK becomes the best performing equity market in Europe. Europe sees bond yields remaining steady i.e. close to zero or negative while the mismatch between performance of risk assets and real economy continues to reach unprecedented levels. Peripheral European risk assets do well despite ongoing disputes with EU related policies.

5.   The Nikkei tags another 10 pct. up move as Japan along with other Asian markets finds a strong start to the new decade amid talks of more QE in Japan as inflation continues to remain subdued.

6. Hong Kong protests linger but intensity of the movement reduces and HangSeng Index and HangSeng China Enterprises Index have one of its best years in a decade. After a tough first half for Hong Kong in terms of negative news flow second half sees a recovery in news flow and capital flow.

7. Indian economy sees a return to 7% growth in the second half of the year after a tepid first half as Foreign portfolio inflows flood into the market. Small caps and mid-caps find a new lease of life with many in the sector seeing big up moves.

8. Gold and Silver remain well bid but nothing significant as risk assets receive extraordinary inflows. Gold and Silver end up making mid- single digit positive returns. Correlation across asset classes remain very high.

9. Copper sees a significant pick up and along with other industrial metals such as Nickel, Palladium and Platinum tag along a healthy 15% gains for the year as India, China see revival in growth rates.

10. Traditional Banks and Tech companies fight for payments, customers and customer-centric financial transactions accelerate. The likes of Amazon, Google, Apple and Alibaba take over smaller/regional banks to enter the world of traditional financial services. Venture Capital becomes more sensible as path to profitability drives listings across all verticals.

Happy New Year and Best Wishes for 2020