Assuaging worries of a looming recession, the economy grew at a robust 3.2% in the first quarter. Instead of earnings dipping into negative territory, as analysts had expected, corporate America ended the first quarter slightly in the black. // Perhaps most important, the Federal Reserve Board pivoted from telegraphing as many as three rate hikes in 2019 to zero rate hikes. Stocks hit a new high on April 30, delivering an early 2019 return of 18.3%, including dividends—nearly two years’ worth of the long-term average gain for stocks in just four months. As strategist David Kelly of JP Morgan Funds noted, in the vernacular of NASA astronauts, all systems were “go.”
Then President Trump tweeted about trade. To steal Kelly’s metaphor, he might as well have tweeted, “Houston, we have a problem.” Stock prices sank 4.5% in six trading days as the trade war with China escalated. Stocks have been volatile since, and the downdraft served as a swift reminder that substantial risks are building in this aged bull market and in an economic expansion that in July becomes the longest one ever.
In our January issue, we said that Standard & Poor’s 500-stock index could reach 2950 to 3000 in 2019, with no guarantees that the highs would come at year-end. We got to 2946 on April 30. Although we’re not ruling out violent swings up or down, we now think that the year will end with the S&P 500 somewhere closer to 2850, as