Mid-Year Market Outlook

Mid-Year Market Outlook – Alex Petrovic, CFP®

As of July 19, 2019 YTD, the S&P 500 Index is up 20%, and international stocks (MSCI EAFE Index) are up about 13%. U.S. bonds (Barclays U.S. Aggregate Bond Index) are up a little over 6%. A great year indeed after a disappointing 2018. Unlike 2016 and 2017, as you can see from the chart, 2018 and 2019 have been bumpy years for U.S. stocks (S&P 500 Index), even though stocks made money. We expect the ride for all stocks to be bumpy going forward, even if the stock market pushes higher.

Unfortunately, though, we think it will be difficult for the markets to climb much higher this year unless some new, good news occurs. What could drive the market even higher in 2019? A resolution to the U.S. vs. China trade war and better than expected corporate earnings are probably the two biggest items on the stock market’s “wish list.”. See my article below for why a comprehensive resolution to the U.S. vs. China trade war currently seems unlikely.

We still believe the chance of a recession in the next 6-18 months is moderately low; however, given the uncertainty of global geopolitics, including the U.S. – China negotiations, this may increase. Vanguard recently raised its estimated chance of a recession in the next 12-18 months from 30% to 40%. However, a recession in 2020 is not its base scenario. It still thinks 2020 will be a year of slow U.S. growth (1-2% for the next year). Especially since global central banks, including our own U.S. Federal Reserve, have recently signaled they will do what they can to keep this economic expansion going. This should also be positive news for global stocks in the near-term.

We maintain our positive view on equities, especially in the U.S…. Equities (Stocks) have historically performed well in the latter stages of the economic cycle — generating returns above the full-cycle average. (Source: Blackrock, Global Investment Outlook, July 2019)

With that said, we are cautiously optimistic for stocks/equities and the global economy for the remainder of 2019 and 2020. Medium to longer-term, we still think a mild recession and bear market in stocks are possible. Stay tuned!