This session featured the three major themes that Chief Global Market Strategist Kristina Hooper considers critical for her 2020 macro outlook -- disruption, divergence, and demographics & debt.
Within the disruption theme, she outlined three major forces that investors should be prepared for: monetary policy, geopolitics, and innovation. She emphasized how the volatility of these factors (and within the stock market itself) that first emerged in 2018 would continue through 2020. Accommodative monetary policy would also persist, although experimental tools like helicopter money would likely see more usage, particularly by the ECB (now headed by Christine LeGarde). Geopolitical concerns, like the rise of economic nationalism and protectionism, would also be a mitigating factor to the global economy. In her view, trade needs to continue to flow, otherwise the de-globalization that is being experienced could lead to a recessionary environment. Lastly, innovation, particularly technological innovation, while an overall positive for the macroeconomic environment, could lead to painful consequences like structural unemployment. She used driverless technology to illustrate this point, as drivers (such as for trucking companies or Uber) would lose their jobs and be unable to find work to replace the loss in wages due to a lack of training in another field. To combat these concerns, Hooper recommended a focus on the low volatility factor when selecting securities, argued that actively-managed strategies could outperform, and also suggested a look at balanced risk funds.
The second theme that Hooper touched on was divergence. She walked through how different economies are experiencing different levels of growth, and these differences would continue to be more pronounced moving into 2020. The Fed's more dovish policy has encouraged this divergence in international markets, particularly in Asia's emerging markets. She sees this area as one of the best for investors seeking growth opportunities and noted that supply chain shifts out of China haven't returned to the US, but have simply moved to different Asian countries. For investors, she also noted that certain markets like Asian EMs have low valuations, and this low valuation factor may be an opportunity for investors that are concerned with overvaluation in larger and more developed markets (like the US).
The last theme that Hooper covered was demographics & debt. She expected the low rates set by central banks globally will likely persist, not just because of concerns regarding economic growth, but simply as a pragmatic concern for large economies servicing their debt. Hooper also noted that household debt, especially in developed economies like Canada and the US, have reached higher than average levels, and this credit expansion coupled with a lack of retirement savings by the same consumers should be a major concern. She concluded by showing how the hunt for adequate income continues, and that alternative sources like EM debt and dividends would be favorable solutions for investors seeking income solutions.