November 13, 2019

Inequality tops Torsten Slok’s 20 risks to markets in 2020

 Torsten Slok, Chief Economist, Deutsche Bank Securities, has issued his 20 Risks to Markets in 2020.

Topping the list is the continued increase in inequality. Slok appeared on CNBC’s Closing Bell to talk about this in more detail.

“The trend we have seen is wealth inequality, income inequality and healthcare inequality have been going in the same direction for 30 years and has been swiped aside by investors,” said Slok. “It’s an issue we think will become important in 2020 and ‘21 and investors need to have a view on if the current trend will continue or will something be done about it.”



Slok added that depending on the outcome of the election, addressing inequality could mean more government spending, higher taxes and/or various ways of addressing spending on - for example - health, education and other things that can address inequality.

Trade war uncertainty is also high in the list. According to Slok the trade war would continue to weigh on capex and durable goods which are still trending lower with no “sign of a turnaround.” This is also the case for manufacturing and CEO confidence indicators are also pointing down. “The big issue (with the trade war) is not will there be a signed agreement, but how are CEOs going to respond?”

20 risks to markets in 2020

1. Continued increase in wealth inequality, income inequality and healthcare inequality.
2. Phase one trade deal remains unsigned, continued uncertainty about what comes after phase one.
3. Trade war uncertainty continued to weigh on corporate capex decisions.
4. Ongoing slow growth in China, Europe and Japan Triggering significant US dollar appreciation.
5. Impeachment uncertainty & possible government shutdown.
6. US election uncertainty; implications for taxes, regulation and capex spending.
7. Antitrust, privacy and tech regulation.
8. Foreigners lose appetite for US credit and US Treasuries following Presidential election.
9. MMT-style fiscal expansion boosts growth significantly in US and/or Europe.
10. US government debt levels begin to matter for long rates.
11. Mismatch between demand and supply in T-bills, another repo rate spike.
12. Fed reluctant to cut rates in election year.
13. Credit conditions tighten with more differentiation between CCC and BBB corporate credit.
14. Credit conditions tighten with more differentiation between CCC and BBB consumer credit.
15. Fallen angels: More companies falling into BBB. And out of BBB into HY.
16. More negative-yielding debt sends global investors on renewed hunt for yield in US credit.
17. Declining corporate profits means fewer dollars available for buybacks.
18. Shrinking global auto industry a risk for global markets & economy.
19. House price crash in Australia, Canada and Sweden.
20. Brexit uncertainty persists.

Related coverage

CNBC.com: Here are the biggest risks to the financial markets in 2020

Marketwatch: The biggest risk facing the stock market in the coming year isn’t trade jitters or the election, Deutsche Bank warns

Washington Post: The Finance 202: Why income inequality is such a huge topic for 2020 candidates — and investors