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Searching for Growth in 2019's Uncertain Markets

Senior investment strategist Marci McGregor suggests moves for investors to consider amid continuing volatility this year.

“THERE’S GRIDLOCK IN WASHINGTON. China’s economy is slowing, and its trade dispute with the U.S. may take a while to resolve. Not to mention worries about Brexit and slower growth in Europe.

It feels like there’s a lot of uncertainty right now,” says Marci McGregor, senior investment strategist, Bank of America Global Wealth and Investment Management. On the other hand, she adds, the U.S. economy remains resilient. “Consumer confidence and employment numbers are both important—and those have been very strong.”

What’s an investor to make of all this? We asked McGregor to share her insights on how to navigate this year’s shifting markets and where the investment opportunities might be amid continuing volatility.

Q: How could a slowing economy affect the markets in 2019?
A: "Many people seem to believe the U.S. is about to turn the corner to recession. We don’t think that’s the case. While we see signs that the economy is slowing, our view is that the economy is continuing to grow above historic trends and should expand by about 2.5% in 2019. Once we get data confirming that over the coming weeks and months, it should help to reassure investors. As for corporate earnings, in the first three quarters of 2018, they were up more than 20%. We do expect them to slow to growth of 5% to 6% in 2019. But in recent weeks the market has been pricing in no earnings growth for the year ahead—and that could make equities more attractive to investors."

This is a time to increase quality. In equities, that could mean owning more large-cap stocks and U.S. stocks. In fixed income, it could mean taking less credit risk and shifting toward shorter durations.

—Marci McGregor,
senior investment strategist, Bank of America Global Wealth and Investment Management

Q: Where should investors consider looking within the equity market?
A: "This is a time to increase quality.  That could mean owning more large-cap stocks and U.S. stocks, which are our preference right now. It may also involve buying companies that can grow their dividends.1 Sector-wise, we still like technology, health care and some areas of industrials.2"

Q: Coming off of four interest rate hikes in 2018, what can investors do on the fixed-income side of their portfolios?
A: "Here, too, it’s a time to increase quality.  In fixed income, it could mean taking less credit risk and maybe shifting toward shorter durations. We prefer an emphasis on short-dated investment-grade corporate bonds, as well as municipal bonds3 in a range of maturities."

Q: Where might investors look for international opportunities?
A: "With more than half of the global population now considered middle-class, there’s a very strong consumer story in emerging markets.4 At the same time, market sentiment has been very negative—which makes emerging market valuations quite attractive. This could be a great opportunity for patient investors."

Q: As investors wait for corporate earnings and other data that could stabilize the markets, is there anything they should be doing to deal with ongoing volatility?
A: "The most important thing is to remember your goals. In down markets as well as up, it’s important to have the discipline to stick to your long-term strategy. That can be hard to do when markets are weak, as they have been lately. But markets like these can create really attractive opportunities if you have a longer-term outlook.

"Before you alter your investment strategy in any way, though, it’s a good idea to speak with your financial advisor. She or he can help you understand how our outlook for 2019 might apply to your situation, taking into account both your risk preferences and the time you have to potentially achieve your long-term goals."

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