The stock market is performing well under President Donald Trump, primarily thanks to the massive tax breaks that were given to corporations. But as we started seeing at the end of 2018, these tax cuts were offset by tariffs for a lot of companies.
Statistically, stocks will fall and rise 10% the next year on average.
Swings in the stock market are not the only indicator that needs to be examined when predicting how the market will perform. Stock markets rise and fall year after year, and a dip at the end of 2018 may be more of a correction than a major concern for investors.
Instead, a few considerations for the coming year are:
GDP is Expected to Slow
GDP performed well in 2018, hitting inflation lows and a near 50-year unemployment rate. Analysts expect the tax cut benefits for businesses to fade this year, and mortgage rates are rising, which will impact the housing industry.
China’s tariffs remain a concern, and a lack of workers may start to impact businesses that can’t find ample employees to fill their ranks.
All of this points to timid GDP growth, and this may keep stock market gains subdued.
Sky-high Earnings Growth to Slow
US stocks have enjoyed rapid growth for years, but as we’re seeing with Amazon, growth is starting to slow somewhat. This doesn’t mean that the growth will stall, but when a company has been able to achieve growth of 30% or more in revenue quarter-over-quarter.
But the company is under increased competition and has such a high market share that these growth figures may be hard to achieve.
Revenue growth is now slowing to the 20% mark, and while not bad by any means, the days are giant growth stocks are starting to fade away. Walmart and others are slowly taking some of Amazon’s market share, but for large-scale companies, especially in the tech field, we’re seeing revenue growth levels that are lower than we’ve experienced in recent years.
This slower growth will lead to higher stock fluctuations, with steeper losses when quarterly releases are made.
Cheap Capital May Impact Lenders
Higher interest rates will cause consumers and businesses to cut back on borrowing. Interest rate hikes will make borrowing more expensive, and this will be just the start of the issues. A tighter labor market will also lead to many employers not being able to retain talent.
Higher wages will dictate the job market, and this is likely to cause job growth to slow this year.
Global Bear Markets are Possible
It’s very possible that the world may see a global bear market, and this is primarily due to economic peaks. There may not be a drastic bear market, and we may even see a bull market in 2019, but a bear market is still a possibility.
Brexit and international markets slowing may lead to higher investment fears.
Central banks will play a major role here, and if rate hikes continue, consumers will be left either unable to afford mortgages and loans, or lenders may find themselves with higher revenues.