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Podcast: Will Stocks Keep Climbing Next Year? No, Says Morgan Stanley

Morgan Stanley predicts a 2020 bear market—Goldman Sachs says stocks will rise at least 5%. Why it might be more expensive to borrow money next year. And expectations are high for Lululemon’s earnings report later this week. Host: Alexandra Scaggs. Producer: Mette Lützhøft.

Listen to Monday morning’s episode of our mini-podcast Numbers By Barron’s.

Three numbers to start your day:

—next year. That’s roughly 5% below where stocks were before the holiday. That would be a big change—the S&P 500 has gained more than 25% this year. But strategists at Morgan Stanley are forecasting flat corporate profits next year, and that, they predict, will lead to more investor caution.

And that’s even before they account for how the market could be affected by the 2020 presidential election. Morgan Stanley says it’s too early to make any call on that.

But not all banks have such a bearish view. The average Wall Street estimate expects corporate earnings to grow by 10% next year. And Goldman Sachs thinks stocks will rise 5%, and maybe more if the U.S. government is still divided after the election.

—at the end of 2020. That’s a moderate increase from where it is now. Treasury yields fell a lot this year, in large part because the Federal Reserve cut rates three times. JPMorgan is forecasting that next year, the Fed will cut interest rates just once more.

In case you’re wondering why we’re talking about Treasury yields, it’s because they matter. A lot. Treasuries are the linchpin for the entire global financial system. Borrowing costs for companies—and often for people—change along with those Treasury yields.

So rising yields mean it will be slightly more expensive to borrow next year. But 2% is still pretty cheap, historically.

—in its third-quarter earnings on Thursday. That would be a pretty big increase from last year.

That’s particularly bullish if you consider how the broader sector has been struggling. Retail stocks in the S&P 500 are down almost 3% over the past 12 months. But investors expect Lululemon (LULU) to be just fine, since it has kept up with changing consumer tastes. Last week the stock reached a new record high.

Numbers by Barron’s is our daily podcast. Find out more here.

Write to today’s host Alexandra Scaggs at alexandra.scaggs@barrons.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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