Investors are reeling in their expectations for U.S. stocks in the new year as the global economy shows signs of slowing and monetary policy continues to tighten. With the longevity of the bull market in doubt, many fund managers say they are expecting more volatility ahead.
Analysts at a number of firms predicted the S&P 500 would end the year higher, although some, like Morgan Stanley ’s chief U.S. equity strategist Mike Wilson, only see the index producing gains in the single-digit percentage range. The S&P 500 (.SPX) lost 166.76 points, or 6.2%, in 2018, closing at 2506.85.
Earnings growth is expected to moderate as rising labor and materials costs pinch profit margins. That could damp investors’ willingness to put fresh money in the stock market.
Many are also growing increasingly worried about the narrowing of the yield curve, the gap between yields on short- and long-term Treasurys. Every recession going back to 1975 has been preceded by the 2-year Treasury yield surpassing the 10-year Treasury yield.
Federal Reserve officials have said that, although they see the U.S. economy on solid footing now, they expect growth to moderate over the next couple of years. Investors are grappling with how long that slowdown can last before the economy tips into recession.
Widespread bets on U.S. growth tapering off have cooled many investors’ enthusiasm for U.S. stocks. Among professional investors surveyed by UBS , nearly half say emerging-market stocks are poised to be the best investment opportunity in 2019.
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