Survey: Advisors Reserved About What Clients Might Face in 2020

2020 advisor outlook united states

As a new year rolls in, one survey suggests that advisors are optimistic but cautious about what might lie ahead for their clients in an uncertain economy.

InvestmentNews has released the findings of another one of its comprehensive surveys of advisors each year. In November of 2019, the news outlet surveyed 353 advisors about their outlooks and their concerns for the upcoming year.

Most of their outlooks were chiefly optimistic, and in some cases, even moreso than last year's survey. They expect the economic expansion to continue and predict another bullish year for stocks. But they do have some reservations about the possible results of the 2020 election.

About 7 out of 10 advisors think the economy is doing well. Only 54% of advisors felt this way in InvestmentNews's advisor survey in 2019. Meanwhile, a hefty 80% of advisors thought so in the survey from 2018.

Positive Outlook Despite Negative Indicators

Even the inverted yield curve from last year didn't cause many advisors to believe that a recession will come in 2020. Only 16% of advisors reported to the survey that they were very pessimistic about the state of the economy and the markets.

But many of the advisors who weren't concerned about the coming year said that a recession is definitely on the horizon. They believe it could happen sometime in the next three years or so.

About 4 out of 10 advisors thought that the recession would come in 2020. Another half of them think it will happen in 2021.

What Do Advisors See as Risk Factors?

Insofar as risk factors go, 56% of advisors expressed being very or extremely concerned about the political climate in the U.S. That is a jump up from 49% of advisors in 2018 and 45% in 2017.

Trade tensions and tariffs were other risk factors that one-third of advisors cited as being very or extremely concerning. Geopolitical shocks were yet another risk factor that 28% of advisors cited as being very or extremely concerning. Interestingly, that was down from more than 36% during each of the past three years' surveys.

The risk factor that advisors reported as being the least concerning in 2020 was low interest rates.

Just 5% of advisors said they are very or extremely concerned about the Federal Reserve changing course and hiking interest rates in the new year. In the survey from 2019, only 17% of advisors had listed it as a major concern.

Defensive Plays Coming More to the Fray

Overall, advisors said they are planning to take more defensive positions with clients' portfolios.

Some 30% of advisors planned to reduce exposure to equities in 2020. Meanwhile, 13% planned to increase their clients' equity exposure, meaning a net decrease of 17% for the year. This compares to a net 23.5% of advisors decreasing equity exposure headed in 2019.

"We're not seeing signs of excess in this economy," said Michael Reynolds, investment strategy officer at Glenmede. "I would characterize our view as optimistic. To be a pessimist right now you have to think a recession is coming."

Mr. Reynolds estimates that there is about a 10% chance of a recession happening in 2020.

Cautious Optimism for New Year Outlook

In 2019, the Standard & Poor's 500 Index closed out with a whopping 30.43% return. Even so, many advisors are taking more defensive positions with their clients' money.

What goes up must inevitably come down. As we move into the twelfth straight year of the longest and strongest bull market in history, advisors are still cautiously optimistic about the markets. But, they are also wary.

More advisors are showing a growing appetite for fixed investments and other fixed-income instruments such as annuities and cash.

"We enter every year being both cautious and optimistic, and we try to prepare client portfolios for 15% moves up or down, but we do believe we're in the late stages of this market," said Mike Kurz, chief executive of OverShare Advice and Planning.

Nervousness Over Political Climate

A growing number of advisors are also voicing concern about the political state of the country. 56% of them listed this as a major concern in 2019. Meanwhile, 49% said this in 2018 and only 45% said this the year before.

"If we get a left-leaning president, like an Elizabeth Warren or a Bernie Sanders, the stock market will be down 20% to 25%, but I don't see that happening," said Mike Mullaney, director of global markets research at Boston Partners.

"If a centrist like [Michael] Bloomberg gets elected, I don't see a radical change," he added. "But if Trump is reelected, it will be more of the same for the markets."

Dennis Nolte, the vice president of Seacoast Investments, echoed the belief that the market has already essentially factored in Trump's reelection.

"We will have a normal market correction at some point in the year, but unless a Democrat wins, the markets already are pricing in relatively stable government regulations and tax policy," he said. "If a Democrat wins it might be a protracted correction, especially if somebody gets into office that is promising all these giveaways."

When it comes to the Federal Reserve, the vast majority of advisors feel there is little chance that it will change course.

"The Fed has been the single most prominent driver of the markets since the financial crisis, and if the Fed turned hawkish it would be a significant risk for the markets," said Doug Cohen, managing director of Athena Capital Advisors. "But we think the Fed will stay on the sidelines."

Put More Peace of Mind in Your Retirement Strategy

Only time will tell how the markets and the economy perform in 2020. Most advisors feel that the stock market will continue to rise next year, and that the economy is in relatively good shape at the moment as well.

However, many are apprehensive about the political climate and the results of the 2020 presidential election. A number of political pundits believe at this point that Trump will most likely be reelected. But there is no guarantee of this.

No matter what, the best guard against uncertainty is having your own retirement strategy set in place -- and ready for adjustments as your life changes. Look for a financial professional who offers the experience, knowledge, and insights to help you prepare a rock-solid financial strategy.

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Use our "Find a Financial Professional" section to connect with someone directly. Should you need a personal referral, call us at 877.476.9723.

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