Key Point

• The U.S. economy likely will remain bifurcated in early 2020. Manufacturing and business investment may continue to struggle amid trade uncertainty, but services activity and consumer spending may continue to be healthy.
• The Federal Reserve’s 2019 rate cuts should support stock prices, as well as rate-sensitive areas of the economy. However, rate cuts are only a partial cure for what ails manufacturing and corporate animal spirits.
• A preliminary U.S.-China trade deal could stabilize the decline in corporate confidence. However, returning to a strong business investment environment likely requires a more comprehensive trade deal.

The dividing line remains firm

U.S. economic growth slowed in 2019, pulled down by weak business investment and manufacturing activity. Although strength in consumer spending and services persists heading into 2020, we expect stabilization—at best—in growth next year.

Myriad uncertainties are clouding the outlook, including earnings and the presidential election. Ongoing trade war ambiguity could further depress corporate confidence and investment.

A key risk in 2020 is that manufacturing weakness and business investment fatigue could hurt services activity and consumer spending, by depressing job growth. Although the U.S. unemployment rate (a lagging indicator) remains low, weekly initial jobless claims (a leading indicator) in manufacturing-oriented states have been rising.

As such, U.S. payroll growth may weaken if limited headway is made on a comprehensive trade deal. However, global economic stabilization could be positive for U.S. growth.

— Read on www.schwab.com/resource-center/insights/content/outlook-us-stocks-and-economy