2018 was dismal, with the S&P 500 index down 6.2%.  It was the first losing year in the stock market since 2008’s financial meltdown.  Indeed, the bottom fell out of the stock market in 2018’s Fourth Quarter; large stocks lost 13.5%, but small companies declined an eye-popping 20%.

Investors who held their ground were richly rewarded in the First Quarter of 2019.  Stocks came roaring back in the first quarter of 2019, with the S&P 500 index up 13.7%.

May lived up to the old adage: “Sell in May and go away.”  The Dow slid for six weeks in that period, the most consecutive weeks down for over a decade, and May was a splash of cold water for investors, with the S&P down 6%, while the Nasdaq slid nearly 8%.

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However, markets have rebounded here in June, and the indexes now sit just 1% below all-time highs.  What can investors now expect for the balance of the year?

Outlook in a Nutshell

For the rest of the year investors must be nimble and selective.  With markets close to all time highs, valuations quite full, and various macro issues weighing on prospects, an across the board bullish approach is too risky.

However, due to our underlying faith in the strength of the US economy, the continued low interest rate regime, the effects of the recently enacted lower tax rates, and forecast productivity enhancements, we remain bullish longer term.

Here are the key issues that will affect markets for the balance of this year.

1. Corporate Earnings

The most important reason to buy a stock is the future stream of profits. 2019 profit growth will fall short of 2018’s.  Indeed, in Q1 of 2019 earnings were approximately flat with last year’s Q1, although that was better than many analysts had projected.

Mitigating this year’s weaker profit growth is the key reason for it.  Number one is that comparisons of year over year growth favor last year because of the late 2017 tax cuts.  Nevertheless, 2019’s corporate earnings continue to benefit from those tax cuts.

Investors will watch not just reported earnings, but the all-important outlook.  Analysts expect the earnings to advance nicely in the back half of 2019, up 3 to 5%.  Managements may be conservative, however, as they try to factor in such headwinds as the Chinese tariff disputes and the strong US Dollar.  A strong American currency raises costs and makes overseas sales more difficult.

On balance, we believe 2019 earnings will come in stronger than 2018. That lays the groundwork, assuming valuations remain constant, for higher stock prices by year end.

2. The Health of the Global Economy

We believe this is the biggest wild card facing the market.  Coming into this year the US economy looked robust, yet Europe and Japan were challenged.  The US unemployment rate is at a 50-year low and consumer spending, accounting for close to 70% of our economy, is robust.  Small business optimism has remained strong.

Europe and Japan continue to struggle. Interest rates remain low, in many cases negative, as lack of demand keeps inflation quiet.  In the case of Europe, all eyes remain on Brexit, and the potential affect of a no deal exit by the UK on the economic health of the Continent. Meanwhile, a populist government in Italy seeks to flout government spending caps, and investors feel this could ultimately result in default by either the Italian government or banks holding its paper, or both.

To continue reading, visit pointviewwealthmanagementinc.advisorproducts.com.

Note: David G. Dietze, JD, CFA, CFP™ is President and Chief Investment Strategist of Point View Wealth Management, Inc., a registered investment advisor at 382 Springfield Avenue, Summit. 

For over 25 years, Point View Wealth Management, Inc. has been working with families in Summit and beyond, providing customized portfolio management services and comprehensive financial planning, to develop and achieve their financial goals. Contact David DietzeClaire TothDonna St.Amant, and Elaine Phipps, or call 908-598-1717 to learn more about Point View Wealth Management, Inc. and how we can help you and your family meet your financial objectives. To sign up for our complementary commentaries and newsletters, e-mail us at firm@ptview.com.

CNBC has named Point View one of the Top 100 fee-only wealth managers in America.