2018 is finally over, the US stock market was unable to recover from its sharp losses due to the political and economic uncertainties. Investors are increasingly nervous over the new year’s outlook.

Why are investors concerned about for 2019? It’s probably because the 10-year US bull market coming to an end.

Although the US stock market hit new record highs in 2018, market sentiment has turned cautious as macro uncertainty grows.

For instance, the Dow Jones Industrial Average (DJIA) and S&P 500 Index plunged by 20% in 2 months before the indexes rebounded last week.

The S&P 500 Index fell 6.2% last year. Chart: Bloomberg

Although US markets had bounced back from the worst-ever Christmas eve since The Great Depression in 1931 – the DJIA soaring more than 1,000 points on 26th December, but the markets have been rattled by major pullbacks last year, and US stock indexes concluded a tumultuous 2018.

The DJIA fell 5.6%. The S&P 500 Index was down 6.2% and the Nasdaq fell 3.9%. It was the worst year for the US stock indexes since the 2008 financial crisis.  

Another Tough Year Is Shaping Up

The question is, could the 10-year-old bull run sustain its positive momentum in 2019? It looks to be challenging.

Why?

It’s because the stock market is full of uncertainties.

Although US President Donald Trump had tried to create a stock market rally, some investors and analysts aren’t convinced the fundamentals are good enough to support the equity market.

When Trump delivered a Christmas greeting to Americans on 25th December morning, he suggested that the pullback in US stock markets is a good buying opportunity for investors.

Image via Sky News.

However, analysts have different views.

According to a news report by The Guardian, analysts said that the fundamental concerns of investors about the global economy and trade had not disappeared.

“I think worries regarding the US government shutdown as well as lack of clarity over whether the US-Sino negotiations (over trade) will go well or not remain,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.

US-China Trade War Is Ongoing

Although Trump and China’s President Xi Jinping agreed on December 1 to hold off on increasing tariffs for 90 days, the trade war is not seeing much positive progress.

Following the arrest of Huawei CFO Meng Wanzhou in Canada, the US government has filed two criminal charges against Chinese nationals for allegedly stealing sensitive information from Western businesses.

The Chinese Foreign Ministry has warned the US that it may damage the relationship between the countries.

This is why investors worry about the intensifying trade war between the US and China may ultimately place more pressure on the US stock market.

Not only that, economists say the trade war is already having a negative impact on the US economy.

Seth Carpenter, the most senior US economist at UBS expects that tariffs will halve the speed of in the world’s largest economy this quarter.

US Government Shutdown

The partial US government has shut down, again. It began at midnight on December 21, 2018. As a result, about 400,000 non-critical employees from nine different agencies were sent home without pay.

This is the second time of the current government shutdown in last year. On January 19, 2018, the government had shut down for almost three days due to the Senate failing to reach a deal regarding young undocumented migrants.  It’s the first time the federal government partially shut down since 2013.

So why has the government shutdown, again?

The current shutdown is due to the funding for border security. Trump has requested around $5 billion to spend on building a wall along the border between the US and Mexico to tackle illegal immigration.

In a past meeting with Democratic Congressional leaders, Trump has reiterated his threat to shut down the government if US Democrats didn’t include the funds to build the wall in the country’s budgetary spending.

However, Democrats say the wall would be ineffective. Instead, they had offered $1.3 billion to continue current border-security funding. It includes fencing, levees, and technology, but no concrete walls.

The partial US government shutdown will continue into 2019 as it’s unlikely for a resolution in the standoff between Trump and Congress to happen within this period.

Donald Trump Attacks the Federal Reserve

One of the biggest fears of investors is that Trump had knocked the Federal Reserve’s raise interest rates many times.

The Fed has raised interest rates again before the end of 2018.

Fed officials last raised rates by a quarter-percentage point to a range between 2.25% and 2.5% when they met 19th December. The move marked the fourth increase last year and the ninth since it began normalising rates in December 2015.

Photo Caption: Federal Reserve Chair Jerome Powell. Photo: BBC

But Trump is unhappy with the decision made by the central bank.

“They’re raising interest rates too fast, that’s my opinion. I shouldn’t have confidence. They’re raising rates too fast because they think the economy is so good. But I think they will get it pretty soon. I really do,” he spoke during Christmas Day.

Investors have been shaken by Trump’s public criticism on the Fed as it will undermine the independence of the central bank.

It’s been a challenging year for investors in the stock market, and many are wondering if the market is nearing the end of its upcycle.

Looking t0 2019, the market will remain volatile due to the global uncertainties. Thus, investors must adopt cautious approach to minimise investment risks.



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