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INVESTMENT STRATEGY QUARTERLY

Letter from the Chief Investment Officer

Ten Themes for 2020

As someone who needs glasses, I know firsthand that 20/20 vision and the ability to experience the beauty and
clarity of life is amazing. As we embark on the start of a new year, clarity and foresight is exactly what investors
are seeking, especially with the daily dose of unprecedented headlines we receive. In hindsight, the guidance
our team of economists, strategists, and portfolio managers gave last year proved prescient as ~90% of our ten
themes for 2019 were accurate. Despite the success, we will not rest on our laurels as 2020 is likely to prove
more challenging. By disseminating our bird’s eye view on various asset classes, we hope to provide investors
with a sharp, reliable lens to help bring their portfolio decisions into focus ...

#1: Keeping a Close Eye on the Economy #3: Tunnel Vision on the US Presidential

Election
The state of the economy is of the utmost importance when
evaluating the return potential of the major asset classes. We Until 3 November, investors will have tunnel vision when it
forecast that US GDP growth will be moderate at 1.7%, but that comes to US politics. While Congressional gridlock (Republican
the current record-setting economic expansion will continue Senate, Democratic House) continues to be the likely outcome,
unabated at least through the presidential election. A resilient uncertainty remains at the top of the ticket. The determination
labour market, robust consumer spending, and a rebound in of the Democratic candidate may last well into the summer
global growth should be supportive. Although it is rare for with an increasing probability of a ‘brokered convention’ – the
recessions to begin in an election year, multiple dynamics will first for the Democratic Party since 1952 – the longer the process
cause us to sharpen our pencils when assessing the economy lasts. If history serves as a precedent, positive economic data
post-election. Our real-time economic indicators suggest a leads to a favourable outcome for the incumbent. But given the
small probability of a recession over the next twelve months, so level of division across the country, the election may be
keeping a close eye on them will be crucial should the economy determined by two key swing states: Pennsylvania and
meaningfully weaken. Wisconsin.
#2: The Fed’s Corrective Surgery #4: A Magnified Look at the Bond Market

When the US economic outlook was clouded by trade tensions Investors searching for yield may need to look through the
and slowing global growth, the Federal Reserve (Fed) performed magnifying glass, as global yields and spreads remain near
corrective surgery in the form of three ‘insurance’ rate cuts. record lows and continue to reduce the upside return for the
Those actions recalibrated Fed policy and have extended the bond market overall. Due to more moderate US growth, muted
duration of the expansion thus far. Knowing that the impact of inflation, international demand, and favourable demographics,
monetary policy lags, and given that the Fed has limited we do not expect the 10-year Treasury yield to move significantly
ammunition with the fed funds target rate at 1.50-1.75%, we do over the next twelve months (year-end target: 1.75%). While
not anticipate interest rates will be altered in 2020. The ongoing credit market spreads will widen slightly, we do not think this
expansion of the Fed balance sheet will provide stealth easing as will negate the positive performance of our favoured sectors—
it provides further liquidity. investment grade and emerging market bonds.

Investment Strategy Quarterly is intended to communicate current economic and capital market information along with the informed perspectives of our investment
professionals. You may contact your wealth manager to discuss the content of this publication in the context of your own unique circumstances. Published January 2020.
Material prepared by Raymond James as a resource for its wealth managers.

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