Over the longer-term, the direction of the stock market is likely to be determined by whether the economy sinks into recession. We don’t expect that will happen. It may take some time, but we believe that still positive economic and earnings growth should convince investors that now-lower equity valuations have made stocks look attractive. At this point, we think investor sentiment has become too negative, which is a good sign for future price action. We think cash is on the sidelines waiting to be invested, meaning there could be appetite for an additional risk-on rally.
Our call in 2019 is for positive economic and earnings growth and a slight uptick in inflation and bond yields. That’s probably not a great environment for government bond markets, but it does look decent for stocks.
Robert C. Doll is chief equity strategist and senior portfolio manager for Nuveen.
1. Source: Institute for Supply Management
2. Source: Bureau of Labor Statistics
3. Source: FactSet, Morningstar Direct and Bloomberg
4. Source: JP Morgan Research, Bull/Bear Report, 4 Jan, 2019