The Big Picture

Dec 22, 2018 | Phil Knight


The Big Picture

With 2018 drawing to an end what does the economy and stock market currently look like? Globally, the economy started to slow slightly, a trend that is expected to continue into 2019, although this does not mean we have a contacting economy, just one that is growing less rapidly than it has been over the past few years.

Economic indicators continue to reflect expanding economic activity, although seem to have reached a peak in mid-2018.

Overall for both the U.S. and global economy, and stock markets we should see decent growth in 2019, with hopefully less sensationalist news than 2018.

The U.S. economy has been the most resilient of all, thanks in part to Trumps tax cuts, repatriating of corporate monies offshore, and increased government spending. This spending will likely see us through a relatively strong growing economy into early 2020.

So what of the short, mid and long term forecast for the markets?

Short term – days to weeks – pretty much impossible to forecast as is purely sentiment driven. But this sentiment is now as negative as it has been for over two years, so we are likely to see the currently volatility continue. The good news is that markets rarely enter protracted downturns when sentiment is so negative, but are more likely at market lows. Additional current negativity is also being caused by uncertainty on the economic (interest rates), international (Brexit) and domestic (corporate growth slowing) fronts.

Mid term – weeks to months – While the markets have been volatile in 2018, they have still stayed within a clearly defined trading range, with peaks and troughs, but very little overall direction. Technology stocks tend to have led the way both in the ups and downs, and have remained one of the few real places to eke out positive returns. However, within individual stock sectors there have been good performers and poor performers, making it especially challenging to achieve any outperformance. This is especially true of passive ETF investing strategies.

Long term – months to years – The U.S. markets have been in a positive trend since the lows of 2009 (not so much for the Canadian Market) and this longer term trend looks to be set to continue. RBC technical analysts believe that the U.S. stock market is at the mid-point of a longer term bull market that they expect to continue until the economy and business climate become even more improved over the next number of years. The upper and lower forecasted trading channels are fairly wide, allowing for the volatility that we are currently seeing to fall completely within these trading bands.

Overall for both the U.S. and global economy, and stock markets we should see decent growth in 2019, with hopefully less sensationalist news than 2018.

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*December 17th 2018

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