Stocks might rise in 2019, but will be stressful

Associated Press

NEW YORK

No matter which way the stock market goes in 2019 – and Wall Street has ample arguments for either direction – expect it to be another gut-wrenching ride.

The market is facing a long list of challenges this upcoming year, from expectations for slower economic growth around the world to the restraining effect of rising interest rates. And the global trade war is still creating uncertainty as investors guess how much pain it will ultimately inflict.

All those risks have market strategists along Wall Street forecasting another turbulent year for stocks, and potentially one of the most difficult years for investors since the bull market began its record-setting run in 2009. That follows up on a 2018 where swings of hundreds of points within a single afternoon became fairly common for the Dow Jones Industrial Average.

As 2018 showed, higher risk doesn’t always mean higher rewards. As of Friday, all major U.S. stock indexes are down more than 8 percent for the year. And many strategists are forecasting a subdued performance for stocks in 2019.

“Ironically ... one would expect higher returns with higher risk, but for the past two years we’ve underscored a slightly more treacherous environment for investors: higher risk and lower returns,” Vanguard’s global chief economist Joe Davis said as he unveiled his forecasts.

He expects global stock markets to return 4.5 percent to 6.5 percent annually over the next 10 years, in dollar terms, versus the 12.6 percent they had provided annually since the market’s bottom following the 2008 financial crisis.

A quick glance at the titles of the 2019 outlook reports for various investment houses shows the increased caution. “The end of easy” was Wells Fargo Investment Institute’s title. “Navigating volatile markets” was UBS Asset Management’s, and “Lower expectations” was Barclays’.

“This is the brave new world for investors,” said Rich Weiss, chief investment officer of multi-asset strategies at American Century Investments. “It’s been nine years, 10 years, so it’s going to be a shock to some of the newer investors who were not around in 2008 or in prior market turns.”

Of course, no forecast is perfect. A year ago, Wall Street was broadly optimistic about stocks and was forecasting moderate gains, largely because economies around the world were growing in sync. But the optimism fell apart as the year progressed and growth rates diverged, in part because of rising trade tensions.

Much will hinge on how resilient the U.S. economy remains in 2019. It has been accelerating since emerging from the Great Recession in 2009, and it got a big boost this past year from tax cuts, which helped corporate profits surge at their fastest rates in eight years. The current economic expansion will surpass the 1991-2001 stretch as the longest on record if the economy avoids a recession through July. In the economy’s favor are the still-strong job market and consumer confidence.