After a year of double-digit growth, the US market is likely to see the biggest market deceleration next year, according to Pictet Asset Management’s chief strategist Luca Paolini, following a year of double-digit growth. 
Despite concerns at the start of the year over the US-China trade war and pace of policy tightening by the Federal Reserve, 2019 has proved to be a more resilient year than many anticipated.
“What we saw last year was the beginning of a slowdown that we felt was going to continue in developed economies for next year,” said Paolini (pictured).
Despite perceptions that this year has been a difficult one, for global investors running a 50/50 government bond/global equites portfolio would have made 15 per cent returns in 2019, the best return since 1993.
“The question now is can these kind of exceptional market environments continue to next year? Or are we going to see that this is the beginning of the end?” asked the Pictet strategist.
It might be the latter, according to Paolini, who warned that global growth is likely to slow in 2020, particularly the outperforming US economy.
The US Is likely to see GDP growth drop from 2.3 per cent in 2019 to 1.5 per cent next year, a trend that the Pictet strategist said is set to continue beyond 2020 and into the next five years.
Strong growth has been reflected in the markets, with the S&P 500 index up by 23.55 per cent year-to-date, in sterling terms.
Performance of index YTD
Source: FE Analytics
But anybody expecting a repeat next year might be left disappointed.
“There’s no reason to panic,” Paolini said. “But everything in the US is actually going to get worse.”
“It’s difficult because you don’t know when the potential turning points are going to happen,” Paolini said. “But, we feel that the weakness will be concentrating more maybe in the first part of the year.”
However, the Pictet strategist noted that a recession during the first part of the year is likely to be avoided.
“The general feeling that I have is that almost everybody seems to be quite bullish about the US. The market is at an all-time high,” he said. “The administration is business friendly, if you look at the polls now, Trump appears to be leading in key states.”
However, Paolini said some economic indicators paint a different picture.
“The job market is the weakest since 2010: nobody's talking about it, but that's a fact,” he said.
Meanwhile, there are concerns that the uplift from previous fiscal stimulus – such as president Donald Trump’s tax cuts – might have been exhausted. Although looser fiscal policy is gaining favour among voters, next year might see Congress vote against any such measures ahead of next autumn’s election.
And central bank firepower is also likely to be limited after three cuts by the Federal Reserve this year, warned Paolini.
“Central Banks don’t know what to do and there is no fiscal stimulus,” he added.
As such, the strategist said he expects US market leadership to end next year to be overhauled by other economies.
Paolini said that he expects Europe to be one of 2020’s “positive stories” with cyclical stocks particularly tipped to do well.
Elsewhere, the strategist has also backed emerging markets next year where – despite a slowing China and the ongoing trade war talk – economies are likely to strengthen.
Performance of index YTD
Source: FE Analytics
“The economics cold war will rumble on,” Paolini said. “The dollar will finally start to weaken. Meanwhile, the US will pass the baton to emerging markets – which will also be leaders in fixed income.
“That strength makes already undervalued emerging market assets look to be the best prospect for investors, not just for 2020 but for years to come,” he added.
As such, the global economy should keep ticking over at broadly the same pace as 2019, the Pictet strategist concluded.