World markets ended the week nearly flat, digesting the balance of positive and negative news, none of which altered the current narrative. The IMF cut its 2019 global growth forecast to 3.3% from 3.5%, but noted that it expects growth to firm up in the second half of the year. The Brexit deadline was pushed out until October 31, while newly released Chinese March data (exports and bank lending) pointed to a rebound in economic activity. The week ended on a high note as markets were encouraged by solid bank earnings in the U.S. and a big acquisition in the energy space. As major indexes have rebounded near all-time highs, our outlook remains positive, but we expect higher volatility as well.
Our Quarterly Market Outlook
Investors celebrated an important milestone this past quarter, the 10-year anniversary of the bull market in stocks. With the S&P 500 just having recorded its strongest quarterly gain in 10 years and strongest first quarter since 1998, the conversation naturally transitions to what's next. The outlook remains positive, in our view, but we expect higher volatility as well. Sustained yet slower economic growth, in combination with continued growth in corporate earnings and still-low interest rates, are all elements supporting the bull market in stocks and suggest it can continue for a while longer. That said, we caution that the high returns the market delivered over the last 10 years are unlikely to be replicated as we advance in this cycle, reinforcing the importance of appropriate expectations and enhanced portfolio diversification.
Economic Outlook: Slowing but still-positive fundamentals
We view a recession this year as unlikely given optimistic consumers, healthy wage growth, and solid business investment. We expect growth to slow to near the 10-year average of 2.3%, with still-solid consumer spending and business investment providing positive support for earnings to rise, with some bumps along the way.
Equity Outlook: High bar to clear, but bull continues
Stocks have rebounded near all-time highs, but conditions have shifted since the last time they were at this level. Economic growth is slightly softer, Federal Reserve policy is easier, and interest rates are lower. However, market fundamentals remain reasonably sound. Strong first-quarter gains have raised the bar, which also raises the potential for short-term disappointments and higher volatility.
Fixed Income Outlook: Interest rates low and on hold
We expect the Federal Reserve to keep short-term interest rates at current levels of 2.25% to 2.5% if inflation stays near the Fed’s 2% target and the U.S. unemployment rate remains near 50-year lows. If this continues, the Fed will have latitude to be patient and data-driven before acting on rates again.
International Outlook: Expansionary policies improve prospects
We don’t believe a global recession is on the horizon since economic indicators have started to stabilize at low levels. However, they have not yet turned positive, and still-low valuations suggest investors remain overly cautious. While trade frictions and political uncertainty will likely cause ongoing volatility, we think international emerging- and developed-market equities are well-positioned to outperform.
Source: 1. Bloomberg, S&P 500 returns
Nela Richardson, PhD
Kate Warne, PhD, CFA
Craig Fehr, CFA
Angelo Kourkafas, CFA
|Dow Jones Industrial Average||26,412||0.0%||13.2%|
|S&P 500 Index||2,907||0.5%||16.0%|
|10-yr Treasury Yield||2.56%||0.06%||-0.12%|
Source: Bloomberg, 04/12/19. Bonds represented by the iShares Core U.S. Aggregate Bond ETF. Past performance does not guarantee future results.
The Week Ahead
The Weekly Market Update is published every Friday, after U.S. markets close.
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