As of Oct. 7, 2019
- Slowing United States manufacturing and services activity is causing growth to decelerate.
- However, the pace of job gains continues to support the economy.
- The S&P 500 Index finished its strongest three-quarter showing since 1997, up more than 20%.
- Analysts expect third-quarter corporate profit growth to decline for the third consecutive quarter.
- The bull and bear case for additional stock gains in the fourth quarter appear equally weighted.
- Corporations and investors may continue to take their cues from developments on trade.
Data Source: FactSet
Signals remain mixed
Recession risks are intensifying, corporate profit growth around the world is slowing and geopolitical frictions are increasingly destabilizing investors’ confidence about the future. The market’s largest risks — a U.S./China trade war and slowing economic growth — continue to give us pause as they loom large on investment sentiment.
At the same time, the S&P 500 Index ended the third quarter near its all-time high, thanks in part to the outperformance of several cyclical areas across the U.S. economy this year. Defensive stocks continue to outperform, while previously underperforming areas of the market were strong in September. This points to healthy participation across the U.S. market entering the last stretch of 2019. However, in many respects, the investing environment remains as uncertain today as it was at the start of the third quarter.
While stock prices may face increased volatility during October, history suggests the final months of the year in aggregate produce positive results. Although 2018 surely missed the mark on this point — the S&P 500 Index declined by 13.5% in fourth-quarter 2018 — we believe last year’s performance was more the exception rather than the rule. With that said, developments on the trade front may once again challenge favorable historical trends if U.S./China trade tensions take another turn for the worse.
Risk and opportunity appear balanced
As we begin the final quarter of 2019, investors should ground themselves in market themes that continue to support stock prices and keep tabs on catalysts that pose risks. Though hardly an exhaustive list, below is our summary of the bull and bear case for stock prices over the coming months.
At a high level, we believe a little more caution is warranted today. Nevertheless, investors would be remiss if they simply ignored the market’s resiliency, which, in our view, should temper a more bearish view.
A quick take for your portfolio
We believe investors should tactically overweight U.S. assets and alternative investment strategies, underweight international investments and ensure their portfolios hold a healthy amount of high-quality investments built to weather a range of market environments. Please consult your Ameriprise financial advisor for more information on our asset allocation guidance as well as recommended investments that can fill a high-quality portfolio.
Data source: Morningstar Direct
As of Oct. 7, 2019