2019 Outlook - January 2, 2019
2018’s late-year volatility erased gains, and most major market indexes finished in the red for the first time since 2008.
2018 is in the rearview mirror. Let’s peek into our crystal ball as we begin the new year.
1. Leading economic indicators suggest growth may moderate in the first half of 2019, following a trend that began in Q4.
2. S&P 5001 profits likely peaked in Q3, with annual growth of 28.4% (Refinitiv formerly Thomson Reuters). Earnings growth will slow next year.
Some of the recent volatility has been tied to uncertainty regarding economic growth and profits next year.
3. The Fed has penciled in two rate hikes in 2019. It has done a poor job of communicating that its projections are flexible and depend on how the economy performs.
4. Trade tensions are likely to influence action. A deal with China or a workable framework that leads to progress later this year would likely be viewed favorably. Brexit and Italy’s financial situation remain on the radar.
As you prepare for the new year, remember that the S&P 500’s average peak-to-trough pullback each year since 1980 has been 14%.
The S&P 500 has averaged a 31% decline every 5 years since WWII. But, over the same period, the index has been up 79% of the time – total annual return.
Stock can be unpredictable over the short term, but have a long-term upward bias, and have beaten inflation and Treasury bonds by a wide margin over the long term (US BLS, LPL, St. Louis Fed, NYU Stern School of Business).