Wild swings on Wall Street have investors on edge. Since the start of December, the S&P 500 has averaged a 2 percent daily intraday move. As investors start to digest the current volatility and look beyond the year's end, the focus is beginning to shift toward what can buoy the market in 2019.
Four experts weigh in on what effects earnings, economic data and the Fed could have on the markets next year.
• Jeff Saut, chief investment strategist at Raymond James, thinks we've hit a low, and the fleeting hopes of a so-called Santa Claus rally could come to fruition. "I think we've put it an undercut low, just like we did in February," said Saut. "You undercut the Oct. 29 low last week with that print at 2,583. If that low holds up, I think you've started the Santa Claus rally." Saut is also optimistic that the rally will continue into the new year, and that growth will keep going strong. He also warns that if you don't get in now, you might regret it. "I don't think the economy is going to slow that much, and I continue to think earnings are going to come in better than most people expect, and I think people are under-invested."
• Wells Fargo Securities global economist Jay Bryson said the big focus in 2019 should be wages and inflation. If the labor market stays this tight, we could be in for even more rate hikes. "What happens if wages really start to accelerate as we go through 2019 and that really starts to put some upward pressure on prices? Instead of talking only two rate hikes next year, I'm going to talk about what happens if they actually start to go four, because inflation really starts to pick up," said Bryson, "If I'm looking at an imbalance or an excess, if you will, in the economy, I think it's the tightness of the labor market and, potentially, what that could mean for wage acceleration going forward."
• Anastasia Amoroso, global investment strategist at J.P. Morgan Private Bank, thinks earnings revisions are something to watch in 2019, saying, "At this point, I think that's what's going to drive the market more than valuations." Right now, she thinks EPS estimates are too high given market conditions, and that valuations are going to start coming down. "Globally, we're looking for 8 percent earnings growth, and given the economic slowdown that we're seeing, given the tightening that we're seeing, given the yield curve developments in the United States – and not to mention trade wars – I think that 8 percent EPS number for 2019 looks a little bit high."
• Leuthold Group's chief investment strategist, Jim Paulsen, says that inflation fears have really narrowed the path for the bull market, and a full recovery for the market might require a slowdown to shift the focus away from an inflationary mindset. If a slowdown happens without accelerating into a recession, it could create an important upswing opportunity for investors. "I think that fear of recession could, if it escalates further, create a real buying opportunity if people are wrong and we don't recess. They might give assets away at very cheap prices on their fears. If that isn't realized, there could be that one great buying opportunity left," said Paulsen.