AFTER NEARLY 10 YEARS of witnessing the U.S. economy and stock market recover—and thrive—investors are starting to wonder if we’ve seen all this expansion and bull market have to offer. Despite the market weakness we saw at the end of 2018, at LPL Research we expect the U.S. economy to grow in 2019 and support gains for stocks.
Given we are a decade in and likely nearing the end of the cycle, however, it is a good time to start thinking about what the next phase for the economy and markets may look like. The intention here is not to start worrying or assuming the worst, but to remind ourselves that slowdowns and declines—even recessions and bear markets—are a normal part of our market cycle. And even more importantly, if we’re prepared for any downturns, we can be better positioned to weather any challenges that may be ahead.
That’s where Outlook 2019: FUNDAMENTAL comes in—because we could all use a handy guide when it comes to this market environment. We’re here to make sure you’re prepared for what may be around the corner, or further down the line, and help you through it all.
Why You Need This Book
As investors, we have all acquired a certain amount of experience with everything the economy, markets, and news headlines may throw at us. So we know that market declines are normal. We know that we’ll eventually have a bear market. And we know the economy may slide into a recession before it can pick back up again. But there’s a big difference between knowing something and actually going through it. Actually feeling it. As we also know from experience, these declines don’t feel good.
The good news is, there are a few strategies to help us navigate those potentially difficult environments:
FIGHT THE IMPULSES. There’s a long history of many investors selling near the bottom. It can be difficult to fight that urge, but a sensible plan that’s realistic about risk can help you stay on course. There’s a natural tendency to overestimate risk tolerance when risk is low. A realistic assessment can make it easier to navigate challenging periods.
BLOCK OUT THE NOISE. The 24-hour news cycle is aimed at creating an emotional response that will keep the audience tuning in. Not getting caught up in the news cycle and having sources that help provide perspective can make it easier to avoid costly decisions driven by strong emotions.
BELIEVE IN THE FUNDAMENTALS. Stock prices ultimately depend on corporate earnings growth. If you believe that companies will continue to grow earnings, you implicitly believe that stocks are likely to rise in the long term.
This final point is arguably one of the most important, and one we’ll continue to emphasize throughout this edition. Our conviction in the fundamentals supporting the economy and corporate profits is driving our forecasts for solid GDP growth and positive stock returns. Yet, many positive fundamentals could be pressured by threatening issues such as trade, monetary policy, or global politics. As a result, we do expect to see more volatility, and continue to encourage suitable investors to embrace that volatility for its potential opportunities, rather than fear it. By managing our emotions and staying in tune with market signals, we can position ourselves for any market environment.