Hindsight is 20/20, but finding clarity in future uncertainty can be fuzzy. 2019 has been a very rewarding year for investors. One year ago we were all tested with market volatility, but hope that our guidance based on solid fundamentals helped you resist the temptation of straying from your long-term investment plan.
As we look forward to the year 2020 and a new decade, some key trends and market signals will be important to watch. These include progress on U.S.-China trade discussions, slowing global growth, an encouraging outlook from corporate America, and continued strength in consumer spending.
In our view, progress on trade remains central to growth projections. We expect 1.75% U.S. gross domestic product (GDP) growth in 2020, reflecting the potential for continued trade and geopolitical uncertainties amid the expected gradual slowing of the economy at this point in the economic cycle.
Turning to the bond market, we expect a modest increase in longer-term yields. Our year-end 2020 forecast for the 10-year U.S. Treasury yield is a range of 2–2.25%. Continued flexibility by the Federal Reserve in setting interest rates should provide enough support to the economy to foster a modest increase in longer-term yields.
Based on expectations for better corporate earnings growth in 2020, along with continued economic growth in the United States, we expect support for stocks at current valuations. After the strong market gains thus far in 2019, we look for corporate earnings to be the primary driver for stocks next year. By our calculations, we believe the S&P 500 will increase by mid-single-digit returns, consistent with profit gains, by the end of 2020. We look for mild inflation and still-low interest rates to support these valuations. At the same time, we are mindful of our position in this extended business cycle, and will be on the lookout for signs of moderation.