2019 Midyear Investing Outlook: Where to Put Your Money Now

One-third of the way into 2019, the U.S. stock market looked more resilient than ever. The bull had snapped back from a devastating correction like a bovine half its age. Assuaging worries of a looming recession, the economy grew at a robust 3.2% in the first quarter. Instead of earnings dipping into negative territory, as analysts had expected, corporate America ended the first quarter slightly in the black.

Perhaps most important, the Federal Reserve Board pivoted from telegraphing as many as three rate hikes in 2019 to zero rate hikes. Stocks hit a new high on April 30, delivering an early 2019 return of 18.3%, including dividends--nearly two years' worth of the long-term average gain for stocks in just four months. As strategist David Kelly of JP Morgan Funds noted, in the vernacular of NASA astronauts, all systems were "go."

Then President Trump tweeted about trade. To steal Kelly's metaphor, he might as well have tweeted, "Houston, we have a problem." Stock prices sank 4.5% in six trading days as the trade war with China escalated. Stocks have been volatile since, and the downdraft served as a swift reminder that substantial risks are building in this aged bull market and in an economic expansion that in July becomes the longest one ever.

, with no guarantees that the highs would come at year-end. We got to 2946 on April 30. Although we're not ruling out violent swings up or down, we now think that the year will end with the S&P 500 somewhere closer to 2850, as earnings continue to increase, but modestly, and investors express a smaller appetite for risk by keeping price-earnings ratios in check. That would put the Dow Jones industrial average between roughly 26,000 and 27,000--let's say a little bit