2019 Market Outlook

What does the second half of 2019 look like for the market? Stocks, Bonds, Sectors and of course, politics...


July 1st is around the corner, and that marks the beginning of the second half of 2019.


Most investors have been happy about 2019 so far. However, it has not been a calm first half. We saw a strong bounce off the lows in December during Jan and lasting to early March. Then the China/U.S tariff talks fell apart, and the market dropped again. 


As we had discussed during the end of 2018, the China trade issues would play a strong influence on the market, and we had to watch out for any black swan event. We now know, it was not North Korea that would be the Black swan, but Iran.  



During the beginning of 2019, I believed three factors would shape at least the first half of the year.  I thought the threat of rising interest rates, the China/U. S tariffs and earnings forecasts for 2019 would quickly shape how the stock market could perform.


When the talks broke down between the two countries, the market headed south in March. Since then, the market has experienced some sharp downturns, and at the same time, we had some great rallies. If you factor in the ups and downs, the market has moved mostly sideways since April, but the S&P 500 is up about 18% YTD. 



Rising rates were going to be the big unanswered question of 2019, but the about-face of cutting rates possibly twice has given the market some exciting possibilities and has rallied upward in June. 


Corporate earnings will always be an essential part of an overview of the market, but tariffs have just begun to impact companies, and many will have question marks when it comes to future visibility. Should analysts lower expectations for companies, then there could be some substantial downside to corporate earnings for late 2019 to early 2020. 


Since the announcement on Friday that President Trump and President Xi agreed on some tariff issues they put future tariffs on hold for new talks to begin and the overseas markets have rallied since and I'm sure our markets will have a 200 or 300 point move to the upside come Monday. 

Continuing on a positive note, there will be several areas that should see good developments. I believe the rest of 2019 may test an investor's patience and discipline, but don't let this take your focus off of your goals. Stay true to your long-term goals, do intense research before putting your money in any investments and if all stays normal, it could turn into a banner year for investors.  




Stocks and Bonds: 


In the first half of 2019, we saw many of the indexes in return double digits returns. Some IPOs had a slow start, but others like Beyond Beef and Pinterest have had good performances. Other named stocks have seen returns of double and triple returns in the first half and could add to the gains in the second half.  


Not all sectors participated in the good news of the first quarter. Some areas like trucking transportation, some telecom stocks, and some consumer durables have been flat to a little upside. 


Some favorite name stocks like Qualcomm, Boeing, General Dynamics, and AT&&T were in this group, but there were some stocks in their sector that fair better along with the general market. 


Depending on what investor's mutual funds were holding in their top 10 stock positions during the first half of the year, it will dictate how well they did YTD and could give a snapshot of the second half of year should they continue to hold those positions.


It wasn't impossible, but if an investor's fund was down or under-performed in the first half, it should be reviewed for its top holdings and consideration of another fund that is ranked higher and just performing better in its sector.  


I will make a short, summarization list.


Large Cap Growth funds should continue to be a beast for the market in the second half of 2019. I believe Large Cap Value funds should come in a strong second with more mixed results for Balanced funds due to their bond holdings. 


I believe a question mark will remain on some Foreign Equity funds, but the global market seems to be stabilizing and showing the potential for some growth finally. 


Bonds will continue to report a similar story in the second half as the Federal Reserve has hinted at some additional rate cuts which could keep the 5 and 10 year Treasury bond yield at 2% or lower.


However, with historically low yields this could continue a rally in convertible bonds and high yield bonds since investors still need an income stream.


While the second half may not be great for those seeking pure yield, a blend of stocks and bonds could give investors the total return they need to boost the value of their portfolio and to set up for a better income stream in future years should we see a return to higher bond and income yields. 


For investor's wanting the safety of bonds but needing yield or growth in 2018 will need to look at equities or corporate bonds again for solutions.



Also, I think active investments will out-perform passive investing due to the overall nature of the market in 2019. 



The political climate in the U.S will not improve in the second half of 2019 and should worsen as Democrats struggle with the outcome of the Mueller investigation and fall-out from the immigration issues at the border. But the real key to the remainder of the year should come into focus after Mueller speaks in front of the House later in July. 


Considering some other issues facing the country from healthcare reform, infrastructure, ballooning deficits as well as tariff issues and Iran, they could be obstacles that effect 2020.   


In previous years, Wall Street and corporate leaders like gridlock in Washington because it means sweeping legislating will not be agreed upon readily, and the status quo for business should not change. However, they do not like complete political discord since that could have a negative impact as well. The focus on big tech companies and their power over world affair could take on renewed life as CEO's from some of the biggest companies will appear before Congress.


Investors will have to look no further than Facebook and its newly formed syndicate as they talk about created an alternative currency called Libra. A House committee has asked them to put the breaks on any further development of the new currency, but I don't believe many in Congress lack a real understanding of the impacts of new technology or how to slow it down from getting traction.    


Investors will continue to have to do a better job tuning out the static of the media in the second half. I'm sure the news will only become more sensationalized as well get closer to the election, and that will have some impact on the market.  


Each year, clients ask for individual stock picks and ideas for this report. While this report is for my clients, I believe there are general concepts that every investor can take to heart. However, I have also investors want to latch onto to the stocks, not knowing if they are suitable for them or their portfolios. 



I will continue to keep my clients advice throughout the year to changes in portfolio recommendations as well as market conditions.



Looking at current conditions, the key for equity investments in the second half will be replicating the first half of the year. It would be hard, but it's not impossible. The market could continue to move upwards, but at the same time, investors could have a finger by the button looking for any source of bad news so they could protect their profits. 


For this mindset, I would recommend understanding your positions and making decisions based on sound facts and not a knee jerk moment that could take you out of an investment that you will regret later. If your holdings are making any investor that nervous, they may want to consider pairing down their holdings and looking for opportunities later in the year. 


Bonds will continue to struggle as investors still ignore 2% yields. This situation is not going to change in the second half of 2019.


Active investing should out-perform passive investing as investors look to cherry-pick quality names that have been beaten down. More mergers and acquisitions (M/A) should continue the pace we saw in the first half along with more IPOs coming to market. 



I wish everyone a good journey in the second half of 2019 and hope your investments continue to shine and offer you profitable returns.


If your portfolio struggled or you have general questions about investing, speak to a financial advisor. If you haven't created "your" own investment blueprint or you haven't been given one, don't wait and make it a priority for the second half.

Don't go through another year guessing if you are doing the right thing. It is always easier to sit down and review a document to see how an investment has done instead of guessing.


These are the views of Aurora Strategic Advisors, LLC (ASA), and should not be construed as investment advice. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.

Neither the ASA nor the named Broker dealer or Investment Advisor gives tax or legal advice.

Please consult your financial advisor for further information. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.