Waiting to Exhale

The economic expansion that began in 2009 is set to become the longest on record this year. Over that time, the U.S. economy has grown by more than $5 trillion in size, added more than 20 million jobs, and the profits for S&P 500 companies have more than tripled. Yet many investors continue to hold their breath, fearful that any weakness in the stock market or economic data means the economy is headed back in to recession.

To be fair, there have been good reasons for worry: political dysfunction, novel government stimulus programs, and weak economies overseas. Nevertheless, it has been a mistake to bet against the forces that have sustained economic growth–among them, a resilient U.S. consumer, a “whatever it takes” mindset from government policymakers, and above all the ingenious ability of businesses to find ways to make money in the face of in numerable challenges.

We believe that skepticism toward the economy is again misplaced. Following a recent slowdown, we expect a revival in global economic growth this year assuming a trade deal between the U.S. and China takes shape. Anxious investors should finally be able to exhale, and we expect financial markets to be higher at the end of 2019. We also expect economically-sensitive parts of the markets that have struggled recently to perform better once recession concerns fade. On the flipside, sectors that have benefited from recession fears may disappoint.The main risk to this outlook is that political developments do not unfold as we expect, particularly with respect to trade and the Federal Reserve.

In short, were main optimistic on 2019. The following pages explain why and review our recommended portfolio strategy.

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