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27 Jan 2020 – Insights

What I will worry and enthuse about most in 2020

COLUMN: US politics will be this year’s overriding focus of fascination and main uncertainty factor for the financial markets, says Danske Bank’s investment strategist, Lars Skovgaard Andersen.

While 2019 was a fantastic year for equity markets, it was also a year of tension with plenty of political uncertainty. However, a degree of calm has descended on several issues of late:

Boris Johnson won the election in the UK in December and Britain’s divorce from the EU will very likely be approved. Tough negotiations with the EU still lie ahead, but we have much more clarity now than a few months ago. Meanwhile, the US and China have agreed a partial deal in the trade war, and while a complete settlement of the dispute is still far off, this was an important first step.

But what the heck should we then fret about in 2020? 
Don’t worry, there is still plenty to be concerned about. As well as further developments in the trade war, one political event in particular will be all-dominating in 2020: The US presidential election in November.





Negative impact of key political issue 
I’m really looking forward to watching the drama unfold this election year, I hardly dare think about what controversial political statements may surface along the way, and I am excited to learn what will be the biggest political issues.

Will the healthcare sector again bear the brunt of the onslaught, as in the 2016 election? Back then healthcare suffered terribly during the election campaign, because the candidates were focused on reducing medicine prices (even though nothing much has happened since), and healthcare costs are still a focus area for both parties.

The US has some of the world’s highest healthcare costs, and while medicine only accounts for a minor share of the overall expenses, medicine is an obvious political theme that all Americans can relate to. Political uncertainty is a key reason why we have a neutral weight on the healthcare sector, which otherwise includes many interesting equities.

Keep an eye on Super Tuesday in March 
Another interesting question is how the financial markets will react if Donald Trump’s opponent is one of the Democrats’ – in US terms – very left-wing oriented candidates, Bernie Sanders or Elizabeth Warren? Will Donald Trump then suddenly become the favourite of most investors and analysts, even though they are often outraged at his antics? And what agenda will the Democrats’ candidate have in relation to the trade war with China?


Apart from the election itself, Tuesday 3 March will therefore be the year’s most important day – known as Super Tuesday, it is when a great many US states hold primary elections to select the Democratic Party challenger. Super Tuesday should give us a good indication of who will stand against Donald Trump, if he emerges unscathed from his impeachment trial.

Lars Skovgaard Andersen

Investment strategist, Danske Bank



What the history books say 
A glance in the history books tells us that just 4 out of 23 election years since 1928 have generated a negative return on equities, and all election years have produced a positive return if return was positive in January. As I write, the US S&P500 index is up 3.1% so far this month. However, these are mere statistics and give no guarantee for the future, plus Donald Trump is not a man who normally follows the history books.

We can also see that sitting presidents have more often been elected in election years with falling unemployment and rising consumer and business confidence, and Donald Trump will presumably do his utmost to keep US voters happy and financially secure in 2020. We therefore do not particularly expect any further escalation in the trade war that could hit US jobs and consumers, though with Trump you can never say never. Several times in 2019 we saw that a single tweet from the president on Twitter can be enough to trigger considerable turmoil in the financial markets.

We still expect equity prices to rise 
All in all, US politics will be the source of much political uncertainty, tension and fascination in 2020 – but that does not alter our underlying expectation that investors can expect a reasonable return from equities this year. Under the troubled surface it is essentially economic growth and corporate earnings that are the driving forces, and we still see the necessary potential here. 

This content is not investment advice - you should always speak to an advisor about how a possible investment matches your investment profile before making an investment.