Stocks Should Overcome Trade Issues As Well As Growth And Earnings Worries
Overall, we have a positive view toward U.S. stocks. We do think, however, that trade issues and concerns about non-U.S. economic growth will need to ease before equity prices can decisively move higher. Trade remains a significant wildcard, but we are optimistic that tensions will ease in the coming months. Talks on the NAFTA renegotiation seem to be moving in a positive direction. And despite periodic setbacks and the announcement of new tariffs, we remain convinced that the United States and China will be able to come to some agreement that will reduce uncertainty for consumers and businesses. These issues are unlikely to go away any time soon and remain a significant downside risk, but we expect this risk will ease over time.
Outside of the United States, the global economy appears to have downshifted. But we think the negatives are ending and momentum is bottoming. The eurozone appears to be stabilizing and we think China will experience a soft landing.
All of this suggests that the global economic backdrop will continue to support U.S. corporate earnings. Profits are likely to fall next year compared to 2018, as the effect of tax cuts wears off and companies face higher interest rates and the lingering impact of the rising U.S. dollar. But we think the effect of moderating profits has already been baked in to equity markets, meaning the decline shouldn’t disrupt stock prices. As long as the global economy does not experience a significant disruption, we think stock prices are likely to rise over the coming year.
Robert C. Doll is senior portfolio manager and chief equity strategist at Nuveen Asset Management.
1 Source: Morningstar Direct, Bloomberg and FactSet
2 Source: Department of Labor
3 Source: University of Michigan
4 Source: Srategas Research