As the current U.S. economic cycle approaches the longest in history, the question I get asked the most is: Will U.S. equities continue to deliver in 2019? The S&P 500 has outperformed all other major indexes since the bottom of the global financial crisis and, naturally, many expect the divergence between U.S. and international markets to begin to revert – but I’m not one of them.
Most importantly, U.S. economic growth remains very stable. Yes, the tailwinds from early-2018 fiscal stimulus will fade in 2019, leading to a slowdown in growth. However, the recent dovish turn by the U.S. Federal Reserve will help cushion the anticipated slowdown as rates across the curve are generally lower now than they were at this time last year. And easing financial conditions are supportive for stocks.
The last key point I would emphasize is corporate earnings. U.S. companies have delivered strong earnings since the financial crisis and investors worry whether robust profit margins can be sustained, especially after buoyant earnings last year. Slowing global growth is a risk to top-line revenue growth and earnings growth is likely to slow considerably this year before picking up later in the second half of 2019 and into 2020.