Investors have been rattled by major market pullbacks this year and are looking nervously towards 2019. They might pay close attention to the concerns voiced below by Christophe Barraud, the Paris-based chief economist and strategist at global broker-dealer firm Market Securities. Bloomberg has ranked him as the most accurate forecaster of the U.S. economy for every year from 2012 onwards, of the European Union (EU) economy from 2015 onwards, and of the Chinese economy in 2017, per Business Insider. The table below summarizes his biggest concerns for 2019, which he sees as being a "very challenging" time with a great deal of uncertainty.
4 Red Flags In 2019
|U.S. GDP growth slows to 2.5% in 2019, from 4.2% in 2Q 2018|
|Trump's tariff war with China accelerates, reducing GDP growth|
|The Fed hikes rates 3 more times by June, and once more later in 2019|
|Increased volatility throughout the markets, both stocks and bonds|
Source: Business Insider
Significance For Investors
Barraud's biggest worries center around international trade, and how the expanding tariff war is likely to reduce worldwide economic growth. "Expectations for global trade growth are a bit optimistic for this year and next," he said, per Business Insider, adding, "most economists aren't taking into account the impact of tariffs." He also warned: "we think that Trump could launch a new wave of tariffs on the auto sector. It will have a negative impact more on the global economy, but to a certain extent to the U.S. economy."
Another impediment to growth in 2019, Barraud says, will be sharply higher oil prices. He expects that this will be the result of low spare capacity worldwide, sanctions on Iran that limit its oil exports and political instability in Saudi Arabia.
"We think that Trump could launch a new wave of tariffs on the auto sector. It will have a negative impact more on the global economy, but to a certain extent to the U.S. economy." — Christophe Barraud, chief economist, Market Securities
Source: Business Insider
Meanwhile, the October release of the monthly Global Fund Manager Survey by Bank of America Merrill Lynch indicates pessimism about the global economic outlook among the world's biggest investment managers is at its worst since November 2008, during the financial crisis, per another Business Insider story. Among respondents, a net 38% foresee slowing growth over the next 12 months. Also, a record 85% believe that the world economy is late in the cycle.
Some investment managers see the recent volatility in the market as the result of a rotation from high valuation growth stocks, most notably those in technology, to safer investments, such as bonds, The Wall Street Journal reports. "There's fewer great investment opportunities out there," as Michael Scanlon, a portfolio manager with Manulife Investments, told the WSJ.
Barraud recommends U.S. stocks over European stocks, given his assessment that political uncertainty in Germany, France, Italy, and the U.K. is much greater. Peter Bockvar, chief investment officer (CIO) at the Bleakley Advisory Group, sees the S&P 500 Index (SPX) falling back to its Feb. 9 low, mainly as the result of tightening by the Federal Reserve, per CNBC. This would represent a drop of 5.1% from its open on Oct. 26.
Jim Paulsen, chief investment strategist at The Leuthold Group, has been warning that a correction is necessary to sustain the bull market, and his latest comments on CNBC call for a drop of 10% for the S&P 500 from its current value. Based on expectations that U.S. GDP growth may fall to around 2% in 2019, he said "I think the 2019 earnings numbers go away."