This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.
Otherwise, enjoy the column!
Subscribe to the Monster Stock Market Commentary to get the Weekly Monster Market Commentary and join the 3,136 subscribers getting it for FREE!
2019 is coming a close, and now as we turn towards next year, I present to you a list of 10 stock market predictions for 2020. You can review my list of top 10 predictions for previous years 2016, 2017, 2018, and 2019 to see how I did.
As I did last year, I will start with number 10 and work our way up to number 1 over the final month of 2019. Enjoy!
Prediction Number 7: The U.S. Dollar Will Sink in 2020
With global growth returning, the U.S. economy surging to a 3% growth rate, and U.S. rates on the rise, one would think the dollar would remain strong in 2020. However, that may not be the case because interest rate spreads are contracting, and that may result in the U.S. dollar sinking in 2020.
The Dollar Index
The dollar is on the cusp of a significant break down as 2019 comes to a close. The dollar index, which measures the U.S. dollar against a basket of currencies, is nearing a level of support at 96.50. Should the dollar index break down and fall below that level of support, it could results in the dollar index plunging to around 94 and potentially to as low as 92.50.
The relative strength index is also signaling a bearish warning sign. The RSI has been steadily trending lower since July, despite the index making several new 52-week highs. This pattern is known as a bearish divergence and signals that the dollar index is due to fall longer-term.
Spreads
Another reason why the dollar may be due to fall in 2020, is because the spreads between US and international bonds have contracted dramatically since peaking in 2018.
The spread on German and US 10-year rates have contracted by almost 75 basis points since peaking at nearly 2.8% in November 2018. Now that same spread is just 2.05%. It tells us that US bonds yields have fallen at a much faster pace then compared to the pace German Yields have declined.
Euro
Subscribe to the MCM Stock Market Commentary to get it weekly and join the 3,136 subscribers getting it for FREE!
Additionally, the Euro is showing signs of strength as it breaks free of a downtrend, and a falling wedge, a bullish reversal pattern. The chart suggests the Euro may rise to around 1.145 to the dollar.
The signs for a weaker dollar in 2020 are there, the question is what will come with a weaker dollar. More in prediction number 6.
-Mike
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.