Biggest Risks to the Stock Market in 2019


Predicting what the stock market is going to look like in 2019 after such a volatile year is like trying to guess where a single raindrop is going to land in a massive hurricane. It’s practically impossible. After the calm and confident market that 2017 saw, no one could have predicted that 2018 would result in such havoc and mayhem.

However, believe it or not, some investors believe there are some reasons for being optimistic in this new year after all when it comes to the stock market. Stocks are undervalued when compared to their expected earnings, companies’ fundamentals clearly seem robust, and the economy seems to have remained comparatively strong.

What’s sending the proverbial shivers down the backs of investors’ lately are a number of negative effects such as slowed earnings and even slower economic growth, a hawkish Fed, rising protectionism, and political turmoil. In 2018, these fear factors manipulated the market, making it bump up and mostly down in a tensely dramatic fashion. So what risks are investors facing in 2019? Let’s take a look at three.

Stagnant Earnings Growth

Corporate earnings are the most crucial of all, yet the stock market still responds to a variety of data points. When companies grow, generally their stocks rise as well. Wall Street analysts expect 2019 earnings to grow far slower than the earnings in 2018. In fact, because companies were jolted with a much-needed tax cut at the beginning of the year, corporate profits rose by twenty-three percent last year. Unfortunately, however, that jolt has begun to wear off, leaving 2019 to look not-so-hot in comparison.

In addition, the dollar had also begun rising last year with the US Dollar Index adding about five percent and America’s multinational companies feeling a pinch in corporate profits. US products become more expensive abroad as the dollar becomes stronger which may sometimes work to less international sales.

A research investment strategist for CFRA recently told a popular business news outlet that she expects earnings to grow about seven percent this year. According to Wall Street’s growth forecast, her prediction seems right on par with their prediction of less than ten percent. Although these numbers don’t have investors exactly thrilled, it’s still a good, solid number.

Because the S&P 500 is trading well below its historical average of sixteen times earnings at just fourteen and a half, stock analysts believe markets are due for a considerable comeback. Additionally, health care stocks, which was 2018’s best sector, were so battered universally that they only rose about five percent. Energy, which was the year’s worst sector, fell an about 18.5%. Because the range between these two is so tight as well as being below average, analysist see it as a typical positive omen for the next year in stocks.

Another chief investment strategist from CFRA Research believes that if history should repeat itself, which there is no guaranteeing that it will, that this year’s proverbial lump of coal could metamorphosis into an unexpected gem. However, if stocks do bounce back, will they be able to sustain such a rally? According to another analyst, the would be able to sustain for a time, but he doubts the newfound enthusiasm would last very long.

Global Economic Slowdown

Believe or not, most economic analysts are not predicting a recession “around the corner.” However, this has market analysists wondering what the reason is for stocks having fallen so dramatically in recent months. Chief analysts believe that once the market realizes that a recession isn’t imminent after all, a bottom can be found and a slow climb back up to all-time highs will resume. However, the second-largest economic expansion in American’s history is under threat.

The US economy actually boomed during mid-2018 when it boasted the lowest unemployment rate in a generation as well as being boosted by tax cuts. The second quarter grew at an annual rate of 4.2% and the third quarter grew at 3.4%. Nonetheless, the Federal Reserve believes that the economic expansion pace will slow somewhat during the new year to 2.3%. The US economy is not the only one slowing; also having slowing economies is China and the United Kingdom, both of which are seeing the weakest expansion in years.

Stocks have been dragged from their all-time high which was set back in late September due to fear of a global economic slowdown. As a matter of fact, investors are worried about 2019’s plans for the Federal Reserve. The Fed could artificially slow the economy if it raises rates too fast or it could even bring about a recession. However, at the current time, inflation is not a problem, so the central bank may keep it’s rate-raising at a slower pace if it wants.Nonetheless, it could cause an even larger disaster if the Fed persists in ignoring the weakening inflation date while maintaining their current projected path. On the other hand, stocks could reach new highs this year if the Fed stops hiking rates.

Political Instability

Investors have been thrown for a loop due to the dysfunction in both the United Kingdom as well as the US. Brexit, bad no matter what form it takes, could be potentially dangerous should March 29 come without a deal in place. However, no one really knows what to make of it.

The US government shutdown hasn’t really meant much for the economy, but it has caused investors to become concerned that a looming debt ceiling showdown may ensue due to the impasse. Lawmakers in American need to pass a law allowing the Treasury Department to continue borrowing without restrictions. If this fails, the government could actually default on its debt. This could cause another downgrade by the credit-rating agency of S&P, making the US’ already massive load of debt even costlier to pay back.

Still looming over the economy and markets as well are trade tensions. With the Trump administration threatening to raise tariffs on Chinese goods worth billions of dollars if they fail to meet demands on a multitude of both political and economic issues. Trump’s continued threats undermine the Fed chair, which he appointed, showing no signs of backing off. The implications of a trade war with China as well as an adverse and unpredictable political decision-making from Trump along with continued worries about market recession, we are unfortunately going to see some volatility.