James Hyerczyk
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Economic Predictions

There are the news headlines, and there are predictions. Short-term traders tend to follow the headlines, while long-term investors have a propensity to track the predictions. The key headlines driving the price action are optimism over a trade deal with a little uncertainty mixed in for good measure.

On Tuesday, a Pimco executive offered a short-term prediction on the timing of a trade deal, and an early warning concerning U.S. elections. This followed a longer-term prediction by Goldman Sachs on the economy in 2020.

Pimco Exec Foresees ‘Phase One’ Trade Deal Signing Before Christmas

A “phase one” trade deal between the United States and China could be finalized and signed before Christmas this year, according to an executive from bond investment giant Pimco. John Studzinski, managing director and vice chairman of Pimco, said on Tuesday that he still thinks the two sides would reach a partial deal.

“There are obviously issues remaining about agricultural purchase targets, forced technology (transfer) and broader enforcement issues. But I think the view would be to try to resolve something…by the beginning of December and sign it before Christmas,” he told CNBC’s Geoff Cutmore at the East West conference in the Nansha district of Guangzhou city, China.

“And I think Trump sees this as important. He’s gotten a lot of endorsement from American CEOs who want to see some type of stabilization and anchor in this broader relationship and trade dialogue between China and America,” he added.


Pimco Predicts ‘Material’ Drop in Stocks if Elizabeth Warren Wins Democratic Nomination

The U.S. stock market will fall “in a material way” as soon as it’s clear Elizabeth Warren will become the Democratic Party’s candidate for the 2020 presidential election, said John Studzinski, Pimco’s managing director and vice chairman.

“Putting aside whether she was president or not, if she was the Democratic candidate, the stock market will adjust – probably downward – in a material way as soon as that became clear, absolutely. There’s no question about it,” said Studzinski.

Studzinski did not quantify his prediction of a stock market fall, but his forecast differs from most other because it centered on a Warren candidacy – instead of the presidency.

“My theory is:  If she does not get the nomination, markets will be nervous about that,” Studzinski told CNBC’s Geoff Cutmore.

Goldman Sees the Economy Surprising in 2020

Goldman Sachs analysts believe the U.S. economy is poised to snap back and certain stocks could have the most upside from the economic recovery.

“The equity market is anticipating an acceleration in U.S. economic growth during the coming months,” David Kostin, Goldman’s chief U.S. equity strategist, said in a note Friday. “Investors who want to capture further cyclical upside can improve risk-reward by narrowing their focus to select cyclical stocks.”

Goldman Sachs also believes the effect of easier monetary policy will flow through with a lag of about three quarters, which sets up for a strong 2020. The investment firm also sees an easing of trade war tensions between the United States and China.

“Our economists believe that tariffs have peaked and that the drag on US GDP attributable to the US-China trade war is now abating,” Kostin said. “Their base case is that tariff levels on imports from China remain flat in 2020.

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