I can sum up what happened in 2018 with just a few words: great year for the U.S. economy, not so good for the stock market.
The average unemployment rate during 2018 was only 3.9% and it had fallen to 3.8% by the end of the year. That represented the strongest job market since 1969. Wages grew at the fastest pace in 9 years. Revenues of S&P 500 companies grew at almost 8% and earnings grew by over 20% to levels never seen before. Throw in high consumer confidence, low interest rates, record buybacks (companies buying their own stock), and you have a great year.
If you knew the economy was going to perform this well, what would you assume the stock market would do? You’d probably assume the stock market would rise. Sadly, it did not. The lesson is that stock prices typically reflect economic events well in advance. The great economic performance we saw in 2018 was priced into the market at the end of 2017.
Current stock prices reflect a negative outlook among investors for 2019. Any news or economic data that materializes that is better than the current (low) expectations will lift the market. For example, last Friday’s job numbers were better than expected and the market (DJIA) rallied over 700 points. Naturally, if future economic news is worse than projected, the market could move lower from here.
My colleagues, Robert Luna (Chief Investment Officer) and Luis Galdamez (Director of Research), have been parsing all the data and have prepared a more detailed review and outlook as well as sharing their insights about current stock valuations. Click HERE to check it out.