Stocks have climbed the “wall of worry” once again, but global uncertainty persists as the bull market continues. While the road to new market highs could get a little bumpy as investors deal with Brexit and China trade concerns, investors should focus on the fundamentals supporting economic growth and corporate profitability in 2019.
Although recession calls have grown louder over the past several months, there has been mounting evidence that this economic cycle could persevere at least through the end of 2019. The U.S. labor market remains solid, U.S. manufacturing health remains in expansionary territory, and consumer sentiment is starting to recover. Leading economic indicators suggest there’s more runway in this expansion.
A pause in monetary policy tightening may also support U.S. economic health. The Federal Reserve (Fed) has indicated that it will abstain from raising interest rates further until there is more clarity in the global environment. That message has calmed investors’ fears that continued policy tightening could eventually smother future economic growth. Inflation remains at healthy levels; however, if there are signs of wages growing too rapidly, another interest rate hike may occur, possibly in the second half of this year, to help manage inflation. Even if this happens, it's likely that slightly higher rates won’t derail the economic trajectory.
Corporate profit growth should also support U.S. stocks, as earnings for S&P 500 companies grew last year. While it's expected that the pace of corporate profit growth moderates, it's likely that stock performance over the rest of this year can at least match the mid-single-digit earnings growth that we expect for the S&P 500 in 2019.
Seasonality and momentum are also on investors’ sides. In 27 of the years since 1950, the S&P 500 has closed up in both January and February, and it has gained in the final 10 months of 25 out of those 27 years.
The pieces are in place for a continued economic expansion, and we look for stocks to power through periodic bouts of uncertainty and occasional volatility.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To
determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no
guarantee of future results.
The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often
heightened for investments in emerging markets.
Because of its narrow focus, specialty sector investing, such as healthcare, financials, or energy, will be subject to greater volatility than investing more broadly
across many sectors and companies.
All investing involves risk including loss of principal.
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through
changes in the aggregate market value of 500 stocks representing all major industries.