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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 8: US 10-Year Treasury Rate Will Surge to 2.3%
With global growth returning and the US economy surging to a 3% growth rate in 2020, interest rates in the US will begin to rise. It will result in the long-end of the yield curve increasing, sending the 10-Year rate to 2.3%, up from its current rate of 1.83% on December 14.
Inverted in 2019
The yield curve was inverted for much of 2019 as investors feared a US recession. However, that recession never came. But the slowdown was enough to get the Fed to move from a tightening stance to neutral, to cutting. As a result, the Fed lowered rates three times between July and October. It forced the short-end of the curve lower and helped to re-steepen the yield curve.
Yields Rise in 2020
Now with growth returning in 2020, rates on the long end will rise further. The chart shows that the 10-year is currently below a level of resistance at 1.95% The trend for the 10-year rate is higher at this point, forming a technical pattern known as a rising triangle. It will result in the 10-year breaking out and climbing to its next level of resistance at 2.15%. However, it will not stop climbing there. Instead, it will retrace 50% of the decline that started in late 2018, rising to resistance at 2.31%.
Additionally, the RSI has formed a bullish divergence. The pattern formed when the RSI fell to 18.5 in late May, creating a series of higher-lows, while yield continued to plunge. The bullish divergence suggests that momentum has shifted to favor yields rising over the longer-term.
Yield Curve Normalizes
Rising long-term rates will normalize the yield curve and widen spreads between short and long-dated maturities.
Making 10-year rates rising to 2.3%, prediction number 8 for 2020.
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.