The ABC 2019 Outlook

January 28, 2019

Well, the weather outside finally matches the calendar – winter has definitely arrived in northern Indiana.  This time of year, Alan uses this column to explain the basics of financial planning, and I use it to make some observations about the coming year.  After nearly 10 years of witnessing the U.S. economy and stock market recover—and thrive—investors are starting to wonder if we’ve seen all this expansion and bull market have to offer.

Fiscal policy has played a large role in the US economy over the last few years, especially the tax cut that occurred in December of 2017.  The monetary stimulus that had helped drive the economy and the market in the years following the financial crisis in 2008 has been replaced by fiscal stimulus.  Now that Congress is divided, it is unlikely that there will be any major changes to fiscal policy, which is generally good for the market.  In monetary policy, we expect a slower pace to interest rate increases.

In the new year, we expect market volatility to persist.  One thing that adds to the perception of volatility is the fact that one hundred or two hundred-point swings are not as big as they used to be on a percentage basis.  Program trading, automatic orders using sophisticated algorithms, add to the volatility, and the speed at which the volatility happens.  For individual investors, having a plan and sticking with it may help to take some of the emotions out of dealing with market volatility.  

Against this backdrop, gross domestic product (GDP) growth of up to 2.75% could be in store for the U.S. economy, supported by increased spending from consumers, businesses, and the federal government. Based on expectations for economic growth and monetary policy, along with the noted fiscal tailwinds, 2019 may be another good year for equity investors. Accordingly, LPL Research forecasts total return possibilities within the range of 8–10% for the S&P 500 Index. With market interest rates climbing from historic lows, bond investors must be prepared for gradually rising rates, with periodic surges that may temporarily affect sentiment. As a result, investors can expect flat returns for bonds in 2019, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index.

Conviction in the fundamentals supporting the economy and corporate profits is driving forecasts for GDP growth and positive stock returns. Yet, many positive fundamentals could be pressured by threatening issues such as trade, deficit spending, monetary policy, or global politics. As a result, as investors we can expect to see more volatility, and if suitable, embrace that volatility for its potential opportunities to rebalance portfolios rather than fear it. By managing our emotions and staying in tune with market signals, we can help position ourselves for any market environment.

In addition, although the outlook for 2019 remains positive, we may be nearing the end of the market cycle. Thus, now is a good time to start thinking about what the next phase for the economy and markets may look like. The intention here is not to start worrying or assuming the worst, but to remind ourselves that slowdowns and declines are a normal part of our market cycle. And even more importantly, if we’re prepared for any downturns, we can be better positioned to weather any challenges that may be ahead.

Keeping a focus on market fundamentals is one way to prepare us for what may be around the corner, or further down the line, and help us navigate the year ahead.  Just like the seasons in change here in Indiana, the market and the economy will continue to change and evolve.  Preparing for those changes and incorporating them into your overall plan will help to deal with whatever happens.

For more information, you can listen to the podcast of Smart Money Management radio show on this topic, along with others, at

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. 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.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Economic forecasts set forth may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

This research material has been prepared in part by LPL Financial LLC.

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.