• Credit quality will deteriorate as corporate balance sheets show higher leverage. Expect more downgrades than upgrades from the rating agencies.
• As the credit cycle begins to turn, we expect an increase in debt restructuring and bankruptcies.
• Stock buy backs will continue and take priority over capital investment.
• Volatility will increase as capital markets adjust to higher interest rates.
• The pace of earnings growth in 2019 will begin to slow, as year-over-year comparisons become tougher after the initial impact of Tax Reform on earnings subsides.
• With higher capital levels and relatively solid loan portfolios, U.S. banks will weather market turbulence well.
• Corporate reorganizations will increase in late 2019, resulting in a rise in bulk layoffs.
• Expected returns in financial assets will be lower than normalized historic returns.
Greg Hahn is president and chief investment officer at Winthrop Capital Management.