2019 is off to a good start. Believe it or not, in the first quarter the S&P 500 index increased in value 13.1%, which was the largest quarterly increase since Q3 2009 (+15.0%). However, you can look at it as recapturing the overblown selloff during the last few weeks of December.

Now that the major US equity indices are flirting with their all-time highs from last October, what is our view on the economy and the stock market? What is our course of action going to be?

The Economy.

There has been plenty of talk of global economic growth decelerating this year. This is mostly due to softer dynamics among developed economies, which continue to appear as approaching the tail-end of their current economic cycles.  That said, we are not expecting things to go completely sour overnight. There are still the benefits from tighter labor markets and favorable monetary policies.

In the U.S. we saw continued weakness heading into January, but things seem to have leveled out if not improved a bit over the last month. Even with the Fed putting a halt on further rate hikes for this year, there are always uncertainties on the horizon. Hopes for a China trade deal continues to be delayed with expectations of being completed by end of April have now been pushed to June. The increasingly growing fiscal deficit and corporate debt on top of an expected overall global slowing could all weigh on the markets heading into the second half of the year.

Stocks & The Market.

Stocks are trading at 18.5x earnings which is a good marker that stocks are fully valued. What does that mean? In short, U.S. stocks are becoming more expensive to own and returns may start to normalize or even fade.

A majority of S&P companies are set to report earnings over the next two weeks including many of the larger technology and consumer companies like Apple, Amazon and Microsoft. This could give us a little more insight on the strength of growth. We will be keeping an eye on how the strength of the dollar along with increasing wage cost weigh on corporate profits.

Wrap it up.

The S&P will most likely hit new highs this year. We see the possibility of 3000-3030 on the S&P index for the end of 2019 which is between 3%-4% upside for 2019. That would be a solid performance compared to the ending we had last year. Though with uncertainties that continue to weigh on the economy and the markets, we feel there may be more downside risk going into the second half of the year.

If you would like to discuss your allocation and make sure you are comfortable taking on a certain level of risk, please make an appointment with us to discuss.