In the title, I say might because it is difficult to forecast our massive, multi-faceted, economy, let alone the financial markets. To do this with great accuracy is probably a fool's game. That said, it is possible, in my view, to forecast the very near term, which is what I will attempt to do in this writing. We will examine, in plain language, the remainder of 2018 and 2019.
2018
The U.S. economy is doing very well. The policies set forth by the current administration have stimulated the economy in ways we haven't seen in over a decade. For those of you who do not like the current president, please understand, I am talking about policies, not people or political leanings. To be clear, I may not like many things he says, but I do believe in most of the economic policies…thus far. With this disclaimer, let's look at the remainder of 2018.
The stock market has been overdue for a correction. I believe we have just seen it. With a strong economy, low unemployment, and relaxed regulations, I expect this holiday shopping season will be very strong, especially online. That should help propel stocks higher as we approach Christmas.
2019
2018 will be the first full-year under the new tax laws (i.e., tax cuts passed in late 2017). This should lead to greater tax refunds and more spending. More spending should foster strong corporate profits and I expect things will do fine through the first quarter, perhaps into the second quarter. That's when it gets a bit murky.
As I have said several times, if we get to June 3, 2019, without a recession, this will be the longest period in the history of the U.S. without an economic downturn (recession). This growth cycle will end at some point. I think the economic stimulus from the current administration has served to extend this growth period, but it will end at some point.
Economy in 2019 and Beyond
I expect the probability of recession will increase substantially by mid-2019 into 2020. How do stocks perform during recessions? There have been 23 recessions in the U.S., including the one that started in 1899 and continued into 1900. I have studied each one. Let's look at the following chart. The red, vertical-shaded areas indicate recessions. The blue line is the Dow Jones Industrial Average.
