Investing ideas for 2019 : 3 money-making investment

After an outstanding year for stocks in the U.S. and other developed markets, what can investors expect in 2019?

If the Federal Reserve’s semi-surprise proceed to taper its support for the U.S. economy is any suggestion, you may expect more of the unexpected.

“2019 will feel a lot like 2004 and 1994 once the [U.S.] economy surprised to the high side,” says David Rosenberg, chief economist and strategist at investment manager Gluskin Sheff + Associates. However, you can avoid being surprised. The current economic and market climate, with a nod to history, provides a reliable map for that investing road ahead.

As you prepare your portfolio for 2019, consider this: U.S. stocks likely have a good year, not a great one; stock markets in Europe and Japan appear to be on the mend, and U.S. bond holders could be on thinner ice since the Fed has decided the U.S. economy needs less of its support.

1. U.S. stocks go from great to good

The Standard & Poor’s 500 SPX +1.67% index is up almost 30% so far this season, including dividends. That isn’t a misprint. And also the slow-but-steady U.S. corporate earnings growth, relatively low interest, and low inflation that boosted stock values in 2019 will probably continue.

Still, it’s doubtful the U.S. market benchmark will be even half as generous to stock buyers in 2019. The S&P 500 has enjoyed 20%-plus yearly gains 18 times since 1945, based on S&P Capital IQ; stocks the following year were up about 80% of the time, posting a typical 10% gain. Yet unlike 2019, such positive performance hasn’t come smoothly. Investors in each of those years endured interim market slides averaging almost 12%.

The S&P 500 hasn’t suffered a 10% or greater decline in more than two years. Sam Stovall, chief equity strategist at S&P Capital IQ, sees U.S. stocks tumbling 10% to 20% in 2019 on the rocky road to an ultimately upbeat finish. “Stock market corrections,” Stovall notes, “have not been repealed.”

2. Bonds get riskier

With the U.S. economy evidently out of the woods, the Federal Reserve has gone to live in taper the bond-buying program which has subdued interest rates, supported economic growth and spurred stock prices. The prospect of a tapering hurt bond investors in 2019, and also the reality is still unwelcome for bond bulls.

That said, the Fed isn’t yanking the punch bowl – a minimum of not. It’s important to remember that tapering is not tightening. Both short-term interest rates and fixed-income yields will probably move higher gradually and marginally, but remain uncharacteristically low.

Still, a rising-rate environment would push longer-term yields higher, depressing prices for 10-year Treasurys and other bonds with extended maturities. Against that backdrop, analysts at investment manager BlackRock recommend that investors favor stocks over bonds.

For the text portion of a portfolio, they add, consider high-yield corporate securities, for stock-like in nature, together with shorter-term fixed-income instruments. “Bond buyers beware,” BlackRock cautions. “There are few bargains in traditional bonds.”

3. Big-cap stocks are better

The global economy looks healthier. Two of its most serious cases, the euro zone and Japan, have been in recovery. Research firm IHS IHS +1.45% expects world economies collectively to grow a relatively modest 3.3% in 2019 versus 2.5% in 2019, using the U.S., the euro zone, the U.K. and China being bold.

Stronger global growth is good news for large U.S. companies that count on overseas demand Companies in the S&P 500, for instance, average almost half of their sales from outside from the U.S. Shares of big-cap multinationals – particularly those within the cyclical technology, energy and industrials sectors – also may need a pickup in U.S. growth and a willingness among consumers and corporations alike to loosen their purse strings.

Small U.S. companies, by comparison, are mostly domestically focused. Moreover, these stocks have run far and fast in 2019. On a valuation basis, analysts at Bank of the usa Merrill Lynch favor large stocks over small. Large multinationals also frequently provide dividend income and dividend growth that can satisfy yield-hungry investors.