What a holiday season Wall Street is enjoying.
Stocks are reaching record highs nearly every single day, and it looks as if all the worries of the past year have dissipated.
As we close in on 2020, I feel that it’s time to see what my favorite market analyst thinks about where we are heading.
Leon is not your usual Wall Street character. He’s a self-made, self-proven investor who has seen many bull and bear markets over his prosperous investing career.
Here’s how he describes the situation today:
Kathleen: Leon, the markets have made quite a turnaround since last December. What’s behind this dramatic shift?
Leon: Indeed, they have. It’s something I didn’t expect going into 2019.
Last December, the Fed was tightening, Brexit and the U.S.-China trade war were creating great political uncertainty, and we were experiencing a global economic slowdown.
The world was in a bad situation, and I was convinced the United States was headed for a recession.
However, over the last 12 months, all of these issues have reversed.
First, the Fed stopped tightening. Later in the year, it even began easing again. They’ve cut interest rates three times, launching a new silent quantitative easing program.
Second, political uncertainty surrounding both Brexit and the U.S.-China trade war has cleared up. We now know for sure now that Great Britain will leave the EU according to the deal Boris Johnson negotiated. We also received positive news in December that Beijing and Washington settled on a Phase One trade agreement.
We can already see that these developments are having a positive effect on global GDP growth, which is projected to make a significant leap in 2020.
Kathleen: So, does this mean markets will move even higher?
I think the S&P 500 Index will reach 3,500 within the next six months without much resistance.
I see just two things that could interfere and keep that from happening. One is the Fed raising rates. The other is the United States re-imposing China tariffs.
Neither of those things is likely to happen.
Neither Fed Chairman Jerome Powell nor President Trump would dare to make that move. The former would look stupid if he were to raise rates after cutting them three times, and the latter needs to win the election.
If you’re worried right now that you could be buying stocks at all-time highs, don’t be. They’ll go much higher next year.
Kathleen: You mentioned the U.S. presidential elections, arguably the hottest topic for 2020. Do you think Trump has a chance of winning a second term?
Leon: Yes. Consider what he’s done during his tenure.
Unemployment is at historic lows, the economy is doing great despite all the trade disputes, and he negotiated a substantially better deal with China than the United States had ever managed before.
If it weren’t for the impeachment, I would say that Trump’s chances of winning were 100%.
However, the ongoing scandal could turn out to be a deal-breaker. Therefore, I think it’s a coin toss between Donald Trump and Joe Biden.
Either way is fine with me. Both candidates would be good for the stock market and the economy.
The two I worry about are Elisabeth Warren and Bernie Sanders. Their policies are way too radical and, if implemented, would create a financial crisis.
Kathleen: If that should come to pass, do you see a hedge against a President Warren or a President Sanders?
Leon: In the event either of these candidates becomes the democratic nominee, I would suggest buying gold.
The precious metal does well in times of political uncertainty and stock market volatility.
Moreover, Warren or Sanders winning the election would probably result in a weaker U.S. dollar, which is another catalyst for higher gold prices.
I typically suggest holding at least 10% of your portfolio in gold. However, under the circumstances we’re considering, I’d say that putting at least 20% of your portfolio into gold would be more appropriate.
Kathleen: Great advice as usual, Leon.
Leon: My pleasure.