What's going on?
Battered and bruised by 2018, some investors are hatching defensive plans for the year ahead.
What does this mean?
Investors are anticipating a slower 2019: analysts have been steadily reducing their expectations for US firms’ earnings growth, from 10% a few months ago to an average of 8% now. Some think growth could end up more like 3%.
One reason is the prospect of further interest rate hikes ahead. These make borrowing more expensive and encourage saving instead, potentially holding back companies’ and consumers’ spending and therefore weighing on both profit and economic growth. But it’s not all doom and gloom: there are some stocks analysts are backing…
Why should I care?
For you personally: Predictability could be a good thing.
Several analysts are advising investors buy up “defensive” stocks in sectors like healthcare and utilities, where earnings and dividends are considered pretty predictable (tweet this) – in contrast to major tech stocks such as the FAANGs. People always need medicines and heating, no matter the state of the economy or their wallets – but they might choose to cancel a Netflix subscription if money’s tight. Analysts are also suggesting investors continue the 2018 trend of allocating more of their portfolio to cash. “Cash is king”, after all.
For markets: Political wildcards could shape 2019.
Investors in the UK might be worried about what Brexit means for markets (so is the Bank of England, for that matter). According to the Financial Times, the uncertainty has led many individual investors in the country to go particularly big on cash. And developments in the US-China trade war may well continue to drive markets next year. There’s currently a ceasefire, with fresh negotiations slated for early January. A tariff-free resolution would boost the profits and stock prices of companies in both countries – but no deal would open the door to even more tariffs, hitting profits and stocks further. For now, it’s all up in the air…