The U.S. stock market in 2019 climbed even though there was plenty for investors to worry about. A mounting trade dispute between the U.S. and China, coupled with a slowing global economy and boiling geopolitical tensions, behaved like a perfect recipe for a financial disaster. A benchmark indicator even cried fears of a recession, building up a scenario for investors to flee from corporate stocks.
But what happened was the opposite. As November began, both the S&P 500 and Nasdaq hit record highs. Even the Dow Jones Industrial Average came half a percent closer to its last historic high, bolstered by a better-than-expected earning session, favorable jobs data, and expectations of a positive outcome from the Sino-U.S. trade talks. Lower interest rates this year also made government bonds less appealing and drove investors to equities.
To some, the growth in equities appears like a trend running ahead of actual investor sentiment. Edward Yardeni, president of Yardeni Research, told CNBC he expects “nasty corrections” in what appears to be a “too expensive” stock market.
Explaining a similar scenario more broadly, analysts at Morgan Stanley stressed that traditional funds that typically have 60% exposure to equities and 40% to fixed income would face a meltdown in returns over the next ten years. Strategists including Serena Tang and Andrew Sheets noted two main reasons why the stock market would become a less-profitable bet for investors.
Weak Environment for Economic Growth
A downside move in the U.S. economy does not appear imminent, as employment and economic data make it clear time after time. Investors are also confident after the Federal Reserve offered three insurance rate cuts to expand the economy.