Wall Street, which soared (up more than 18%) on Trump bump in 2017, saw a shaky start to 2018 - thanks to rising rate and overvaluation concerns. Probably, taking the trend into consideration, Goldman Sachs believes that the market might lose steam in 2019.
Goldman analysts estimate eight rate hikes in 2018 and 2019, a slowdown in economic growth to 2.2% in 2019 from 2.3% in 2017 and a rise in bond yields to as high as 4% (a mark not touched since May 2008 ). Notably, until Powell became the Fed head, the bank had penciled three rate hikes for 2018 and two more for 2019. But market watchers are noticing a different trend now.
In short, by 2019, we'll be officially leaving the easy money era in the United States and be in a more normalized rate environment. Thus, the stock market boom materialized by the incessant flow of cheap dollars should cease to exist (read: Welcome Powell Era With These ETFs ).
Meanwhile, the United States will hold the mid-term election in November 2018, which is why the market might get edgy starting the fourth quarter of this year. If President Trump wins again, many more policy changes that might stoke controversies are in the cards.
Goldman Skeptic on S&P 500 for 2019
Goldman expects the S&P 500 to log a 5% gain through the end of 2018 but it noted that 2019 investing requires some caution. Goldman doesn't see the S&P 500 touching 3,000 before end-2019. The S&P 500 currently trades around 2,783.02 at the time of writing, meaning 7.8% more gains are expected by 2019-end.
Quality Picks Needed?
In the view of this scenario, investors should zero in on quality picks to safeguard their portfolio. Quality stocks are generally rich in value characteristics like strong return on equity, low earnings variability, higher free cash margins and low debt-to-equity.
Courtesy of these above-average and high-quality traits, quality ETFs may go a long way in protecting one's portfolio in turbulent times.
Below we highlight four such quality ETFs.
iShares Edge MSCI USA Quality Factor ETF QUAL
The fund looks to follow large- and mid-cap U.S. stocks displaying positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage). The fund charges 15 bps in fees. The 125-stock fund is diversified across sectors with IT, Financials, Health Care and Consumer Discretionary having double-digit exposure each (read: 4 Hot Sector ETFs Springing Up to Rank #1 ).
FlexShares Quality Dividend Index Fund QDF
The fund provides exposure to a high-quality income-oriented portfolio of long-only U.S. equity securities. The underlying index picks based on expected dividend payment and fundamental factors. IT, Financials, Industrials and Health Care are the top four sectors of the fund.
WisdomTree U.S. Quality Dividend Growth ETF DGRW
The fund gives exposure to both growth and quality factors. IT, Industrials, Health Care, Consumer Discretionary and Consumer Staples have a double-digit exposure to the fund.
Barron's 400 ETF BFOR
The fund tracks the performance of the Barron's 400 Index that looks to select high-performing U.S. stocks based on four fundamental factors - growth, valuation, profitability and cash flow.
Stocks selected on the basis of strong fundamentals are then screened for certain criteria like concentration, market capitalization and liquidity (read: 5 ETFs to Follow Despite Cut in U.S. Growth Forecast ).
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