The potential upside for international stock markets will be very close to double digits if the growth levels projected in official reports hold true. However, throughout the year, a series of indicators will emerge that will provide more than one signal to open or close positions in the financial markets. In any case, next year looks very challenging for small and medium-sized investors, who will have to refine their stock market strategies to maximize returns on their equity investments.
International stock markets are starting from one of their highest levels in the last five years, with gains of 86%, 32%, and 22% in the Dow Jones, Eurostoxx, and Ibex 35 , respectively. The question now is whether this trend will continue throughout the year or if, on the contrary, corrections will take hold. In any case, there are some very reliable indicators that will determine their performance over the next twelve months. Want to know what the most important ones are?
In any case, it will be crucial that this new year's investment strategy prioritizes preserving your invested capital above other technical considerations, and perhaps even fundamental ones. You'll need to explore new financial assets if you don't want to fall behind other investors. Because there are certainly more options than the stock market, and the precious metals, commodities, and alternative investment markets demonstrate this trend, which is likely to prevail in the coming year.
Keys: global economic growth
Forecasts for this year will be one of the driving forces behind the stock market's performance, depending on the corrections that occur in the coming months. In this regard, the latest report from the International Monetary Fund (IMF) has raised its global growth projection to 3,7%. Meanwhile, the Organisation for Economic Co-operation and Development (OECD) maintains the same growth forecast for the global economy, although it points out that the recovery is not yet strong enough.
On the other hand, Bankinter 's analysis department warns that the economy is immersed in a growth phase that could be prolonged. Given this scenario, they favor equities as the most profitable investment instrument. Specifically, they target the Ibex 35 at around 11.000 points, 9% above current levels. However, many uncertainties certainly need to be resolved from this point forward, especially those concerning the Eurozone countries. In any case, it will be a very complex stock market year, much more so than in previous years.
Business expectations
The quarterly results presented by listed companies will be a crucial parameter for assessing share prices. Pending the fourth-quarter results, profits for companies listed on the Ibex 35 grew by around 13% in 2018, a slowdown compared to the first quarter, when economic activity surged by 20%. However, one of investors' concerns is how the Catalan issue will affect company accounts in the coming months. This is so significant that it will be a key factor in determining the direction the benchmark index will take.
However, the first signs of a slowdown in the Spanish economy, and by extension in international economies, are already emerging. This could lead to lower corporate profits than in recent years. Consequently, stock prices may correct to a greater or lesser degree, potentially causing a significant decline in international stock markets. This is one of the risks you face if you plan to invest in equities in the coming months. It may be the right time to adjust your investment portfolio , both in the stock market and in other financial products, such as investment funds.
Reduction of monetary stimuli
Monetary policy on both sides of the Atlantic is shaping up to be one of the key factors for stock market performance in 2019. However, there are some divergences between the two economic regions. On the one hand, the US Federal Reserve has decided to end the year with interest rates above 1%, after raising them by a quarter of a point. This is the fourth increase in the price of money since it changed its economic strategy. For this new year, the process of withdrawing stimulus is expected to continue , although it will be gradual, as the Fed insists. This decision has not prevented the Dow Jones from rising 25% in the last year and reaching all-time highs.
In the European Union, on the other hand, the outlook is somewhat different, with interest rates remaining at record lows of 0%. Since January, the European Central Bank has halved its purchases of public and private debt, which were implemented to boost the eurozone's economic recovery. This program has contributed to European stock markets appreciating by almost 30% over the past five years. However, 2019 will bring a new scenario due to the European regulator's intention to cease stimulating financial markets. This news has not been well received by small and medium-sized investors.
Oil price evolution
Another area to watch closely is crude oil prices . Any significant upward or downward deviation will generate sharp changes in stock market indices. In the first scenario, this would create inflationary pressures in major international economies. Meanwhile, if it trades below $40—as happened a year and a half ago—it would create distortions in countries most closely linked to this financial asset. In any case, the average price per barrel is around $65, with an annual increase of 24%. Forecasts indicate that crude oil will rise by nearly 10% this year, according to the latest Goldman Sachs report.
The outlook for this new year is that the price of oil will continue its upward trend. This could negatively impact a significant portion of the financial markets. However, it could also be a good time to take positions in publicly traded companies linked to this important financial asset. On the other hand, it's a fact that it could hinder global economic growth from continuing at the same pace as before. This is another risk associated with the new year, as many financial analysts acknowledge.
Elections in Italy and in Germany?
The political factor will also be decisive in determining which way equities will go in the coming months. In this regard, the elections that may take place in Italy over the next twelve months will be of great importance. It should not be forgotten that Italy is the third largest economy in the European Union, behind only Germany and France , and the eighth largest in the world with a Gross Domestic Product of $1.850.735. Any outcome that generates further instability in forming a government will have repercussions in the financial markets, and especially in the stock market.
Meanwhile, the stock market will be closely watching the negotiations between the two main parties (CDU and SPD) to remain in government in Germany. Otherwise, Germany would be headed for new elections in the spring, signaling instability in the financial markets because it could paralyze the most urgent issues within the EU. This sentiment is being tentatively reflected in the German DAX , which has fallen by almost 1% in the last month. Adding to this is the rise of so-called populist parties.
Withdrawal of aid in the EU
Another particularly relevant factor is the withdrawal of stimulus measures in the European Union, which will take place this year. This could be a significant blow to the stock market, as selling pressure could clearly outweigh buying pressure. In any case, it will be another factor to consider next year, and certainly not a minor one, in terms of its impact on stock prices.
Not surprisingly, it will be a lot of money that moves away from the stock markets to seek other business opportunities. Both in fixed income and in that considered as an alternative investment. To the point that it can mark the evolution of the stock market in 2019. News that is not well received by small and medium investors.