2. High levels of corporate activity from late 2018 may have been “borrowed” from 2019 in anticipation of more tariffs.
3. The earnings backdrop looks highly uncertain.
4. Political and economic uncertainty could put a lid on valuations.
5. Trade issues are a huge wildcard and are far from resolved.
6. The rising deficit and debt ceiling battles could become an issue in 2019.
Near-Term Clarity Is Needed
Given all of these crosscurrents, where are markets headed? In the near-term, we think the sharp back-and- forth action of the last couple of weeks is likely to continue until investors start to see clarity on some important issues.
Chief among those may be trade. Investors are probably going to remain on edge until an actual solid trade deal between the United States and China is reached. There have been some positive signs on this front and at least negotiations are continuing. But both sides still seem a long way from agreement. Other geopolitical issues are also causing consternation, with the possibility of a messy Brexit also contributing to uncertainty.
The ongoing government shutdown is also contributing to volatility. Ending it would be good news, not necessarily because the shutdown is having serious negative economic consequences, but rather that it would produce a sense of confidence and predictability when it comes to Washington, D.C.
The Coming Environment Should Be (Mostly) Equity Friendly