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Continued Mixed Messages: The Financial Outlook For 2019

The only certainty about the world’s 2019 financial outlook is that we’re likely to encounter continued volatility. The nation’s economic uncertainty has several disparate causes, but it’s difficult not to notice the turmoil in the marketplace today. Investors and consumers alike are looking towards 2019 with a mix of trepidation and optimism. And, quite frankly, that feeling seems rather justified.

Ending 2018 with Uncertainty

To say that the 2019 financial outlook is full of uncertainty is not necessarily a significant leap of intuition. That’s because 2018 was full of anxious unpredictability, ending with a crescendo of wildly fluctuating stock markets combined with a bitter government shutdown. In any other year, that would have been enough to make investors nervous, but 2018 was full of unpredictability:

  • Trade Tensions: The reliability of global trade is exceptionally important to financial stability worldwide. In 2018, investors watched with wariness as the Trump Administration introduced new tariffs on a wide variety of products. These tariffs have been especially to blame for escalating trade tensions between the United States and China. Economists spent most of 2018 warning that such an escalation was, in almost every case, a lose-lose for both of those economies.
  • Bear Markets: The stock market was incredibly unpredictable over the course of 2018, moving form all time highs over the summer to lows during the holiday season. Whether the DOW, Nasdaq, or S&P officially move into Bear Market territory or not (or continue into Bear Market territory) is difficult to predict—especially given the huge swings the stock market has been experiencing.
  • No Help From Treasury: Under pressure from President Trump, Treasury Secretary Mnuchin made several unprecedented moves to attempt to reassure the markets in late 2018. And they all backfired horribly, injecting more instability and uncertainty into the financial markets.

An Unpredictable New Year

The year of 2019 finds itself beginning under the cloud of all that uncertainty. However, it’s not all bad news. According to investment banking conglomerate UBS, which released a report on its outlook for the world economy in 2019, there are some reasons to be optimistic.

There are several important takeaway from UBS’s 2019 financial outlook:

  • Global growth is expected to slow in 2019, but only as compared to 2018. In the United States in particular, 2018 growth occurred at a rather healthy clip, so a slowdown doesn’t necessarily mean a poor outlook. It just means that the U.S. might not reach the heights it did in 2018.
  • Changes in monetary policy will continue. It’s likely that the Federal Reserve in the U.S. will continue increasing interest rates. This helps keep inflation in check and provides the Fed with tools to combat a recession should one appear. But higher interest rates mean (generally speaking) a more subdued stock market.
  • There’s still plenty of opportunity out there. In fact, UBS’s report suggest that there will be several pockets of accelerated growth. Where those pockets happen to land is difficult to predict and will likely depend on various factors.

It’s All About the Politics

Rarely have politics and economics in the United States been so heavily intertwined. According to a recent Marist Poll for NPR and PBS NewsHour, something like 60% of all people were feeling optimistic about 2019 and 37% of people were feeling pessimistic.

However, of those who were feeling pessimistic, 64% of respondents blamed politics for that feeling. The dour political mood, no doubt shaped at least in part by the most recent shut down, is likely to continue into 2019, injecting further instability and uncertainty into an already rattled financial system.

Volatility Doesn’t Ensure a Recession

It should be noted that, while financial markets don’t necessarily like uncertainty, the unpredictability of the 2019 financial outlook doesn’t translate into certainty of a negative outcome. Hiring was strong in December and the unemployment rate is still historically low.

The American economy enjoyed a relatively robust 2018, and so it’s mostly safe to assume that 2019 will also be a good year, financially speaking. While there’s a fair amount of worry out there, there’s no serious talk yet about a financial recession. That’s why the 2019 financial outlook is mostly good, even if it’s not as great as 2018.

That said, we’re likely to see continued political turmoil in 2019, and there’s just no telling where that might lead. The only thing we can say for sure is that we need to expect the unexpected.

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