2020 has already been extremely eventful already, what's in store for the rest of 2020 for the ASX share market?
Within the first three weeks of 2020 the US was nearly dragged into another damaging Middle East conflict and the trade war between the US and China also seems to finally be de-escalating, but I don't think it's the last we've heard of the problems between the US and China. How their relationship develops will define this century.
What about the ASX share market?
No-one can truly know what's going to happen, that's what makes investing in shares uncertain but can make the biggest returns.
The ASX 200 (ASX: XJO) has been driven higher to 7,000 by a few key shares like CSL Limited (ASX: CSL) and BHP Group Ltd (ASX: BHP). Low interest rates are forcing investors to search for businesses that are actually performing well. Iron ore remains at a good price and CSL's earnings performance is impressive every year.
Investors are avoiding the big banks because of regulation changes, National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) are particularly being avoided because of AUSTRAC worries and concerns about upcoming penalties.
I believe that the end of the trade war will see ASX shares perform positively for the first quarter or even the first half of the year. It will hopefully extend to the August 2020 reporting season as global positivity flows through to earnings.
However, I think there's a danger that the world may start to think that interest rates are going to go up. Interest rates are at record lows across the world, or certainly close to it. Interest rates shouldn't be this low if the global economy is going to perform well this year.
I'm not sure how the share market would react to rising interest rates. They would be going up because projections for earnings are good. But, valuations are heavily affected by interest rates, as we saw in 2019. If interest rates were to raise it would probably be a good thing for local and global banks, particularly if they could improve their net interest margins (NIMs).
Foolish takeaway
I don't think that 2020 will produce returns even half as good as 2019 for the ASX or the global share market (25% to 30% last year). But I think we'll see a positive return overall for 2020 unless Sanders or Warren win the election and the market worries about what this will mean for the US.
