The stock market roared to new highs in the new decade as the trade war cools, recession risk slides, and big tech promises big profits.
All three major stock market indices set new records in early trading on the second day of the new year. The Dow Jones Industrial Average peaked at 28,734. The S&P 500 Index touched 3,248. The Nasdaq Composite reached the 9,059 level.
The benchmarks spent 2019 setting records and crushing them with new all time highs, outpacing even some bullish investors’ projections. Judging from the roaring start to the new decade, markets expect another blow year for stocks in 2020.
But the rally isn’t without some familiar worries as the economy ventures deeper into the uncharted territory of a ten-plus years expansion.
The U.S.-China trade war has been foremost among Wall Street’s concerns as it raged throughout 2018 and 2019. Signs of progress in trade talks were a key factor in much of last year’s stock rally.
Markets were jubilant to ring in the new year with Trump’s announcement of a finalized trade agreement ready for signatures this Jan 15.
Bottom line, to use an old marketing analogy, in 2019 markets were successfully sold on the ‘sizzle’ that the trade truce and rate cuts will cause a global economic reflation. Now, in 2020, it’s time to try the steak.
Also topping the list of favorable macro shifts is a new USD $115 billion round of stimulus from China’s central bank. The People’s Bank of China announced the move to reduce banks’ deposit reserve ratio by 0.5 percentage points on New Year’s Day.
Macro tailwinds in the U.S. economy include continuing steady GDP and retail sales growth, low inflation leaving the Fed plenty of room move (Fed Chair Powell is even worried inflation could be too low), and employment continuing to rise.
Dow futures exploded along with the index itself Thursday morning as the recession risk continues to slide. Over half of analysts are recommending buy on ten Dow stocks with 6% or more upside in the 12-month target price.
Visa (NYSE:V) leads the Dow in analyst confidence with 77% recommending buy after a year of 40% growth. Wall Street forecasts the highest target price upside of 14.4% for McDonald’s (NYSE:MCD), followed by Chevron (NYSE:CVX) at 13.4%.
Wall Street is bullish on NASDAQ blue chips in 2020 as well. Analysts expect another year of over performance from FAANG and Microsoft.
The cooling trade war is a major boon for Apple (NASDAQ:AAPL), the Dow’s crown jewel in 2019. More analysts flipped “Buy” on Apple over the last quarter.
Facebook (NASDAQ:FB) was the teflon stock in 2019, accruing nearly 60% gains over the last year while weathering a number of scandals and missteps.
Deutsche Bank’s Lloyd Walmsley expects another big year for Facebook in 2020 as it optimizes content algorithms and scales Marketplace:
We are bullish on Facebook and see the renewed strength in the core Facebook app becoming a critical leg of the story around FB shares in 2020.
Microsoft (NASDAQ:MSFT), the only trillion dollar market cap company other than Apple, also leads analysts’ picks for the next year.
Analysts at Bank of America expect growth in Microsoft’s cloud segment to fuel stock growth in excess of 25%, targeting $200 per share in 2020.