With US stocks facing multiple risks, it’s easy to lose sight of the positive trends that could help the market recover. In 2019, investors should search for select stocks with the right attributes to produce positive surprises in a potentially tricky market environment.

When 2018 began, investors were upbeat for good reason: GDP growth was expected to be the strongest since 2005. Corporate earnings were projected to grow by at least 20%. The president was bent on deregulation. Nobody worried about a recession. US stocks moved higher until the fourth quarter downturn dragged equity returns into negative territory for the year. It was the first time investors lost money in US stocks during a calendar year since 2008. And it was the first time in 70 years that a market rose by more than 10%, only to end the year in the red.

What Changed?

In the fourth quarter, real fears took center stage. Investors started worrying about the Federal Reserve tightening monetary policy, fallout from the escalating trade war with China, a partial government shutdown and maybe even a recession by late 2019. In 2019, US GDP growth and corporate earnings are likely to slow from robust levels in 2018. Memories of the bear market of 2008 suddenly seem vivid.

Caution is warranted and market conditions are complex. Yet we believe US equity markets could surprise skeptical investors in 2019. We’re not wearing rose-tinted glasses, but we are taking a cold look at the state of the US economy, expected corporate earnings growth, current valuations and history.