What Will Drive U.S. Stock Market In 2019?

stock market

The stock market presents an amazing opportunity to grow your wealth. You can earn high returns if you make the right investments at the correct price.

But even for the most seasoned investors, it’s not quite easy to know exactly what will drive the markets at a certain time in the future. However, they are able to identify and evaluate risks and respond accordingly to avoid making losses.


In 2018, stocks had what can easily be described as a remarkable year despite heightened concerns about global trade disagreements and increasing Federal Reserve interest rates. We really don’t know whether the reckoning will come in 2019 or a few years from now, but there are a few things that U.S. investors ought to be worried about as we enter a new calendar year.

A prolonged U.S. trade war with China

Although trade tensions between Washington and Beijing appear to have subsided in recent weeks, they nonetheless triggered significant volatility for the stock market in 2018. The Chinese government under the leadership of President Xi Jinping recently agreed to scrap tariffs for U.S. auto parts and raise soybean imports.

While the two economic giants are likely to come to an agreement on multiple trade issues as the new year unfolds, bigger structural problems such as Chinese alleged cyber espionage and intellectual property theft may weigh on markets as the new year unfolds.

The Trump administration has time and again called China a threat to the national security as the country continues to ramp up efforts to challenge the U.S for technology supremacy. Negotiations will be difficult as the U.S. and its allies continue demanding that China reigns in its aggressive practices.


Based on a soft Brexit, the European Commission forecasts that the United Kingdom will fall to the bottom of the European economic growth league in 2019, joining Italy as the slowest growing economy in the European Union, before sinking further in 2020 to sail the ship alone.

A soft Brexit refers to a scenario where the United Kingdom remains either within the European Union Single Market by agreeing to become a member of the European Customs Union, or the European Economic Area, or both. However, if it stays in the EU Single Market, it would have to maintain free movement of citizens of EU member countries, contribute to the block’s budget and be subject to the European Court of Justice judgments.

In such a scenario, the UK would nonetheless face insignificant short-term economic impacts of exiting the European Union. But one of the biggest concerns is that it would be harder for the country to sign new trade agreements with other major world economies like the United States, which would be a big blow for investors.

Both the EU and the UK have also made plans for a “no deal” scenario, in case they are not able to come to a withdrawal agreement. If no agreement can be made, public bodies, businesses, and consumers would have no choice but to react accordingly to changes as a result of Brexit. That would create uncertainty for stock markets all over the world, including in the United States.

Democrat-Controlled House

Democrats are set to retake control of the House of Representatives after a remarkable win in the November midterm elections. Republicans, on the other hand, will retain the Senate after the Democratic Party failed to chalk up surprises. Small-cap stocks are likely to experience a huge impact now that the government will be divided.

According to data provided by the Goldman Sachs Investment Strategy Group, there is a statistically significant effect on the performance of small-capitalization equities in times of a split Congress.

Small stocks experience gains of 9.5 percent on an annualized basis in periods when one party is not in control of both houses, which is less than half the 21.8 percent annualized gains seen in periods when a single party is in control of the government. Large-capitalization stocks, on the other hand, post annualized gains of 10.8 percent in periods of a split Congress, and gains of 16.4 percent during united Congress.

The political situation facing big tech and social media companies certainly is also likely to heat up in 2019 with a divided government in place. In 2018, political sentiment took a toll on stocks of social media companies, including Facebook, Alphabet, and Twitter.

Executives of all three companies have had to testify before Congress over hate speech and user privacy concerns. Facebook, in particular, has remained on the headlines for the negative role it played in the meddling of U.S. presidential election in 2016.

Republicans see some tech and social media companies as politically biased, while Democrats view them as platforms that breach user privacy and promote hate speech. If Congress pushes hard for federal digital privacy laws and continues to summon these companies in 2019, investors might find themselves between a rock and a hard place.

Federal Reserve benchmark rates

While major emerging markets other developed economies are not in a hurry to raise rates, the U.S. Federal Reserve is likely to keep the dollar strong but close to a peak, if continues tightening its monetary policy.


A hawkish central bank is bad for the stock market because it squeezes profit margin and increases the cost of borrowing. Banks, however, tend to profit from regular benchmark lending interest rate increases, thus making their stocks profitable.

Bottom line

The U.S. stock market is dynamic and is likely to be moved by these and many other factors, including very small actions next year. As such, investors ought to be ready to absorb any changes by finding the right trading strategies in order to continue earning returns.