Earnings growth north of 20% for the S&P 500 has helped power the market in 2018. But profit growth is expected to slow to less than 10% in 2019.
The series of interest rate hikes by the Federal Reserve could begin to slow down the economy as well, especially as the stimulative impact from tax cuts begins to fade. That's why the big jump in profits this year may be unsustainable, according to JPM Asset Management chief global strategist David Kelly.
"With both wage growth and interest rates expected to rise further next year, margins should begin to come under pressure," Kelly and his team wrote in a recent report.
Trade could also hurt stocks next yaer. US President Donald Trump and Chinese president Xi Jinping are not guaranteed to reach a deal before higher tariffs go into effect. And it's not as if the United States is only fighting a trade war with China: It's also involved in several trade spats with other nations. The impact of all this trade tension could lead to more volatility.
"Unresolved trade issues remain an uncertainty," wrote Jason Pride, chief investment officer of private client for Glenmede, in a report.
The global economy may slow next year too, and that could put pressure on earnings for big American multinational companies, noted Matt Peden, chief investment officer at GuideStone Capital Management.
Have investors already factored in a sluggish 2019?
Each of those factors suggests the market choppiness of this year will continue into 2019 -- and it may be tough for stocks to climb much further from current levels for the foreseeable future.
Still, not everyone thinks 2019 is destined to be a tough year for stocks.
Some think that the trade truce between the US and China will ultimately lead to a deal, as both sides will come to realize that neither of them will win an actual trade war.
"The strain from having the two largest global economies at loggerheads is being felt," said Dec Mullarkey, managing director of investment strategy with Sun Life Investment Management. "In the US, the farming community is feeling the pinch."
"And on recent earnings calls many S&P 500 companies commented on trade effects and the uncertain outlook. In China, the economy has slowed and the government has been forced to stimulate with tax cuts," Mullarkey added.
The market has already plunged on worries about a global slowdown. That may be a sign that 2019 won't be as bad as feared. Investors have already sold stocks on worries about the future.
John Augustine, chief investment officer with Huntington Private Bank, said that the market sell-off in October and November was a sign that investors are not overly bullish. They are preparing for a pullback in profits.
"The market has already adjusted for slower growth next year," Augustine said. "Stock valuations have come down much quicker and more than we thought."
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