Initial Thoughts on 2019
As we start the year, I thought it might be helpful to provide our initial thoughts on our outlook for 2019 regarding the economy and markets. These points will be expanded on in later updates. Still, these updates should give you an idea of how we see the current environment and what we expect going forward.
We have already positioned portfolios in a way that we believe is prudent for 2019. Adjustments are continuing.
We have some degree of optimism that 2019 will be a reasonable year. We also believe that 2019 will be a year of transition and volatility with many headlines. A few of our underlying assumptions are as follows:
- We expect slower growth earnings. Earnings acceleration from last year is simply unsustainable and we will likely see that play out as earnings are announced by companies beginning this quarter. Watch for earnings projections as well.
- Interest rates will likely rise slower than many had expected. We have been of the belief for a significant period of time that the Federal Reserve would modify their very hawkish stance outlined in the fourth quarter of 2018. That appears to be happening now as highlighted by Chairman Powell’s press conference this week.
- International uncertainty will accelerate. Recent headlights suggest the Chinese economy is significantly slowing and we expect that to continue. Brexit remains a major uncertainty. Drama in Latin America and the potential for United States involvement in that region continues to grow. North Korea remains a major problem and uncertainty related to Iran will not be going away anytime soon. International headlines will drive market movements.
- Global economic growth will slow. With China’s economy significantly slowing and uncertainty growing around the world, we expect global economic growth to be significantly lower than many have previously expected. The international monetary fund has reduced global growth expectations; we agree.
- Commodities likely will continue to struggle given the slowdown in the global economy. A stronger dollar continues to depress commodity prices and with rising interest rates, we believe this will continue.
- Dividend stocks that have been significantly unloved will gather new attention as dividend yields become more attractive in periods of slow growth. Dividends, rather than relying on purely capital appreciation, for many investors is a reasonable strategy.
In short, there are issues of concern that need to be monitored. This is not to say that asset classes will not be effective in terms of their role in portfolio strategies. But it is fair to say, now that tax reform has been priced into asset classes, the bar is a bit higher for news to be significant enough to move prices.
As needed, we will adjust your portfolio strategy. We will continue to update you on our thoughts and opinions on headlines. In today’s rapidly changing world, one’s viewpoint can switch quickly if conditions and data necessitate an adjustment in perspective. Additionally, you can be assured we will continue to communicate with you in these weekly updates.
If any questions, please let us know. Always happy to help!