1. U.S. economy achieving record eclectic expansion.
Can the economy maintain its momentum with decelerating monetary and fiscal stimulus? With little sign of recession, yes. Adam foresees the current expansion reaching a longevity record in July and continuing to grow — albeit more slowly — at an above-trend pace, around 2.4%.
2. One step at a time for the Federal Reserve.
Will the Fed engineer a policy error and overtighten? Adam expects the Fed to remain “data dependent” and flexible as inflation is contained and global growth challenges mount. One or two interest rate hikes are likely this year, he says.
3. Increased volatility keeping investors on their toes.
Return to a higher volatility regime will test investor sentiment, questioning the success of the “buy the dip” mentality, according to Adam. But he notes that positive performance expectations should provide many occasions for active managers to outperform.
4. Bearing down on bonds and cashing in.
Bonds have struggled as interest rates moved higher and spreads widened. Expect the 10-year Treasury yield to move to 3.2% and the yield curve not to invert, Adam says. As for cash, it’s now a viable alternative as short-term rates inch higher.
5. Minding the (equity) gap.
U.S. corporate earnings should move higher, thanks to modest economic growth, solid corporate confidence and buybacks. While earnings growth will decelerate to single digits, 2019 won’t be the peak dollar amount for earnings, according to Adam.

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6. Favoring cyclical sectors.
The significant outperformance of cyclical sectors over the last several years has prompted investors to expect a shift to defensive sectors. Yet, Adam says that positive factors including superior earnings growth bias him to cyclical sectors, particularly technology, energy, industrials and health care.
7. International intrigue emerging.
International equity investors have seen inferior performance vis-à-vis the U.S. for several years, compounded by a strengthening dollar. Although attractively valued, developed international markets will struggle to outperform the U.S. as political drama intensifies, according to Adam.
8. Dynamite dollar dynamics drying up.
A less aggressive Fed, less upside surprise potential for the U.S. economy and diminishing European political risks at the least favor stability for the euro. Adam doesn’t expect the dollar to weaken significantly, although it likely hit its peak last year, he says.
9. Oil leaping higher.
Can OPEC rally oil prices after the 40% decline from recent highs? The oil prices pullback should begin to reduce U.S. production, according to Adam. Forecasts indicate that the global oil market will be undersupplied in 2019. Expect oil to rally to $62 per barrel by year-end, Adam says.
10. Technology: a sustainable revolution.
The technology sector’s recent correction has called into question the sustainability of its leadership quality. Adam says the pullback gives investors an attractive entry point into a sector that continues to grow.

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Market volatility throughout last year was challenging for investors, but could have been expected give that the economy was approaching the late phase of the business cycle, according to Larry Adam, chief investment officer of Raymond James’ private client group.

Check out the gallery to see Adam’s views on the U.S. economy and major global asset classes in 2019.

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