Nobody has a crystal ball that lets them predict the future of the stock market, and I'm no an exception. However, it can be fun to think about some of the what-if scenarios.
With that in mind, here are five things most experts don't think are especially likely, but that I think could happen in 2020. Spoiler alert: My predictions for the coming year are somewhat more negative than they've been in the past.
1. The stock market will have a rough year
I'd argue that this is perhaps the boldest prediction on this list. For one thing, the U.S. economy remains strong in terms of wage growth, unemployment, consumer confidence, and pretty much every other metric besides inflation.
And while it's an election year, it's worth pointing out that the historic average is a 9.5% gain during an election year. And it doesn't matter the party. Aside from Barack Obama's 2008 win, when an awful recession was already going on, you'd have to go all the way back to 1940 to find a negative presidential election year when a Democrat won.
Having said that, I think this year will be different. In addition to the potentially negative stock market implications -- higher taxes, tougher regulations, and so on -- that could result from a Democratic victory, there are a lot of potentially negative catalysts. The global economy has been slowing, the trade war doesn't seem to have any clear progress being made, and I don't foresee any major positive catalysts like "Tax Reform 2.0" on the horizon.
With that in mind, I'm predicting that the S&P 500 will finish 2020 in the red -- but not by too much.
2. Warren Buffett will make his biggest acquisition yet
We'll start with a carryover of a prediction I made last year. At the time, Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) was sitting on a little more than $100 billion in cash, and I predicted the company's acquisition drought would come to an end.
Well, although Warren Buffett and his team tried to make at least a couple of acquisitions, it just didn't work out.
In 2020, I'll take the prediction a step further. Now that Berkshire's cash hoard has ballooned to $128 billion, I'm going to say that Berkshire will make its biggest acquisition ever in 2020.
3. We'll see more consolidation in the financial sector
In 2019, we saw BB&T (NYSE: BBT) and SunTrust (NYSE: STI) agree to merge in the biggest financial sector M&A deal since the financial crisis. And just recently, TD Ameritrade (NASDAQ: AMTD) agreed to be acquired by Schwab (NYSE: SCHW).
I think this could be just the tip of the iceberg, and that we'll see even more consolidation in 2020. The margin pressures coming from the war on banking fees can be somewhat mitigated by the efficiencies of scale, and when it comes to developing new financial technologies, another big component of efficiency -- well, two heads are better than one.
I'm not predicting any specific deals, although some of my favorite fintechs, such as Square (NYSE: SQ) and Green Dot (NYSE: GDOT), look like excellent takeover targets, and there are some small- and mid-sized banks trading at very reasonable valuations.
4. The U.S. economy will fall into recession
Here's one that I hope I'm wrong about. However, there are some major catalysts that could spark the first U.S. recession in more than a decade.
- Economic growth in the U.S. has noticeably softened.
- Global economic growth forecasts have recently been lowered to their slowest level since the Great Recession.
- The trade war isn't showing many signs of progress.
- If one of the more progressive presidential candidates wins, the prospect of higher taxes and strict regulations could be a recession catalyst.
- Some of the most reliable predictors of an oncoming recession -- such as an inversion of the yield curve -- happened during 2019.
To be fair, Bloomberg Economics puts the current chance of a recession within the next 12 months at just 26% as of early December 2019, and most other prediction models are in that ballpark. So I'm going out on a limb by calling for a 2020 recession. But I feel as if there are enough potential catalysts that could trigger one.
5. Interest rates will fall
The latest projections from the Federal Reserve show no further cuts to the federal funds rate in 2020. And while this prediction goes hand in hand with the previous call for a recession, I think the Fed will end up cutting rates considerably in response to a weaker-than-expected economy.
I'll take this prediction a step further and say that bond yields, mortgage rates, and pretty much every other consumer interest rate will get significantly lower as well. I don't exactly think we'll see negative interest rates in the U.S., but I wouldn't be surprised to see a big drop.
I'll probably be wrong on a few of these
To be fair, these are intended to be bold predictions. None of them looks particularly likely, at least at the time I'm writing this. So while all of these are certainly possible, I wouldn't be surprised if only two or three of the five happen – after all, that's how my 2019 predictions went.