What a difference a year and a decade make. Last year at this time the market had quickly dropped 20% lower over recession and trade war fears. Fast forward a year and we are at all-time highs with record holiday spending, we have signed a newer version of NAFTA, and we are about to sign phase one of a trade deal with China.

Last decade we started in the depths of a recession. Unemployment was at the highest level in decades, banks were rapidly failing, and families struggled to come to grips with what would later be termed the Great Financial Crisis. Fast forward a decade and we have record low unemployment, soaring housing prices, and spiking optimism about the prospects of retirement.

It was a great decade by many measures. I think most would agree things are better than they were, overall. So how will the decade ahead play out? What are the defining events and forces ahead?

Challenging times

People feel more divided than ever before. While the economic recovery has been long, this recovery has felt very different from the past few. Too many people feel left behind during this recovery. Growth in income has largely been stagnant while inflation consistently rises. The population is growing very frustrated with public policy to the changing dynamics of the economy and environment.

This is fully evident when looking at the political candidates for the 2020 presidential election. A clashing together of radical ideas is occurring without a more moderate voice emerging. It looks like we’ll have to wait until 2024 or 2028 to see a galvanizing and rational view of exactly how to tackle the growing issues we face.

I am pro-capitalism, but extremes of socialism and capitalism both create issues that undermine their game. The universe has checks and balances that eventually exert their pressure to change the status quo.

Capitalism at this point is running in hyper-mode leading to crony capitalism. The game has played out to the point of siphoning from the bottom all it can take without creating growing unrest. Labor is feeling more divided and detached from management. Management has become more isolated from shareholders. Boards of major corporations are overly focused on near-term stock price appreciation using inefficient means, while lining their pockets with company profits. Companies buying back their shares rather than investing in their people or projects has served as an ATM to a revolving door of upper management.

Companies such as Google, Facebook and Amazon will come under huge scrutiny over the next decade as they operate as monopolies that exert increasing control over huge swaths of our daily lives. They’ve reached the point where the durability of their high growth is questionable, and they would likely be far more productive for themselves and others as split entities.

Clash of ideas

Globalism brought strong growth for the world economy. Now, anti-globalist ideas are giving rise to populist movements. This in return is anti-growth in nature. How this all plays out is of great importance. Hopefully they can be resolved with minimal to no violence, but Hong Kong serves as an example of the balance tilting out of control.

I believe the tension between the U.S. and China has only begun. This will likely be a multi-decade clash of cultures. I believe we should have grave fears of what would come about if we allow China to continue its current policies of human rights violations, intellectual property theft, and increasing interest and control in U.S. and global assets by unfair means.

Interesting times as we face hyper-capitalism inside our borders and face hyper-socialism as what I view as the biggest threat outside our borders. Striking that balance won’t be easy while the pendulum swings. We are more able to argue with everyone in the world than ever before. The rational voice is begging to emerge and unfortunately seems a distant possibility for now.

Investment issues

These all have major implications as to how your investments will fare in the year and decade ahead, and the volatility in which it will occur. Nobody yet knows for sure if the current economic expansion is ending, or if central bank stimulus along with deregulation and lower taxes will prevail in keeping the business cycle in expansion mode. We sit in that in-between space where the stock market has risen in the belief that growth will accelerate again. Lower interest rates, new trade deals, a more competitive corporate tax structure, and deregulation are all more favorable for business today than they have been.

However, economic expansions generally end after gross misallocations of capital occur over a long period of time, belief that a recession is years away, and a euphoric feeling among investors. I think you can definitely check-mark the first, and the other two are much closer today than they were over the past 15 months.

I have believed we should remain optimistic for better-than-expected outcomes over the last few years. We entered this last decade under heavy financial duress, and it was followed by 10 years of economic expansion that surprised nearly everyone. I am wildly optimistic about the next decade, but recessions are an inevitable outcome and are healthy for the longer-term economic success of our country. The next recession will offer many opportunities for those who keep their optimism in people always creating value in a world of abundance.

We at Stewardship Capital can’t predict the future and won’t even try for 2020 with a consensus view or bold prediction that could land on either side of genius or stupidity. We have our method for deciphering the point at which the market could take a large dive like we saw twice in the ’00s, but not in the ’10s. That point has not been triggered. It’s a point that moves upward daily, but currently resides around 2900 on the S&P 500. That’s about 10% below current levels. We believe it is correct to remain positive while the market is above this level. We hope it remains above for many years to come.

If it fell below that level, then we would get far more defensive under the belief that the probability is high for much larger declines. This will hopefully allow us to protect a good portion of our clients’ money from the downside during a recession that sets the table for another long and prosperous recovery.

We want to wish all our readers a very happy new year and decade ahead!

(Past performance is no guarantee of future results. Advice is intended to be general in nature.)

Aaron Pickert, CRPC, is chief investment officer at Stewardship Capital in Independence.