While I am always sorry to see the old year end, from a financial perspective I’m excited to see what the New Year is going to bring. The year 2018 closed in an ugly way for the markets with Q4 investment returns affected by slowing global economic growth, rising interest rates, and tariff uncertainty.
It was the first year in a decade when there were declines in US Stocks (S&P 500 -6.2%), International Stocks (-18.8%), and US Bond Funds (-2.2%). Most articles published in the business press at the start of the year expected slight growth in 2018, but the headlines ended the year screaming panic.
I reviewed a number of predictions for 2019 and think there is some optimism for 2019. Goldman Sachs is typical of most publications – they are forecasting 2019 US stocks to be up modestly – about 5%. They think this is a 50/50 likelihood, with a 30% chance the S&P 500 declines again, and a 20% chance it grows as much as 15%.
The optimism for a rebound is rooted in really strong corporate sales & earnings, which should be the biggest driver of stock market performance. The S&P 500 now trade at about 15x multiple of forward earnings estimates, down from 18x just a few years ago. In the 1990s and early 2000s, Forward P/E ratios were frequently in the low 20s. Basically, investors right now could be said to have low confidence in what companies are forecasting.
We’re long-term investors when it comes to the stock market, so I’m not too worried by the funk we closed 2018 in. We continue to hold a good cash reserve that keeps us from needing to sell any stocks. That said, I’m always happier when I see the numbers going up, than down!
My friend Russ and I bet a beer on where the S&P 500 will finish the year. The over/under is up 2% and I took the ‘over’ this time. How do you think the markets will perform?
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3 thoughts on “New Year, New Markets”
Markets thrive on stability. Volatility results from conflict and uncertainty. As long as the Tweeter-In-Chief dominates daily news cycles with constantly aggressive, disruptive and unexpected personal directives, markets will continue to be queasy. But I hope your “over” bet will turn out to be true, Chief!
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I agree that markets like stability. That said, markets still up quite a bit since tweeter-in-Chief elected, right? Hopefully, he will get China trade pact successfully negotiated with less taxes on consumers of both countries.