After bumpy first half, what’s next for Wall St.?

Market pros not giving up on 9-year-old bull

It has been a bumpy ride for your 401(k) this year, especially after the big gains and smooth glide higher in 2017.

The broad stock market did manage to rise nearly 3 percent during the three-month stretch from April through June, despite escalating trade tensions between the U.S. and its trading partners.

So what opportunities and risks should investors watch out for during the second half of 2018? It’s important to remember there are still enough good things happening in the U.S. economy to keep the stock market’s 9year-old bull running. “I continue to be relatively optimistic,” says Brian Levitt, senior investment strategist at OppenheimerFunds.

Levitt’s thinking is plentiful jobs, confident consumers and strong corporate profits should enable the market to overcome worries, such as tariffs, rising interest rates and uncertainty as midterm elections near.

Even with their ups and downs this year, stocks have been ultimately resilient. The market bounced back from its first 10 percent drop since 2011. And more recently it has held together despite periodic downturns sparked by fears of a looming trade war between the U.S. and China.

Led by big technology and smallcompany stocks, all of the major U.S. stock indexes finished the April-June quarter with gains. The big winners were the small-cap Russell 2000, which rose 7.4 percent, and the techdominated Nasdaq composite, which rallied 6.3 percent.

Brian Belski, chief investment strategist at BMO Capital Markets, says for too long investors have focused on the negatives and not on what’s going right in the U.S. economy. Too many investors, he says, are reacting emotionally to the unsettling headlines. Still, Wall Street pros aren’t calling for another year of 20 percent gains for stocks, which happened in 2017. Instead they see gains of 5 to 10 percent from current levels. Here are the risks and rewards:

❚ Trade war: While many Wall Street pros still believe the U.S., China and other partners will not engage in a full-fledged trade war, there remains downside risk related to trade barriers being erected around the globe, says Brad McMillan, chief investment officer at Commonwealth Financial Network. “The Trump administration’s trade policies have the potential both to disrupt supply chains and increase costs, which would certainly affect markets,” he says.

❚ The Fed: The market could balk at the Federal Reserve’s plan to push ahead with interest rate hikes, with two more telegraphed for this year, bringing the total to four for 2018. With rates rising, investors will be less likely to push stock valuations higher, which could keep a lid on stock prices, Goldman Sach’s U.S. equity strategist David Kostin said in a research note.

❚ Midterm elections: Congressional elections have a history of causing market turbulence, says Sam Stovall, chief investment strategist at CFRA, a Wall Street research firm in New York. The fear is that the Republicans could lose control of Congress, creating uncertainty for the Trump White House.

“The market is being convicted (using) circumstantial evidence, and that type of investing will fail. The business fundamentals in the U.S. are in great shape.”

Brian Belski chief investment strategist at BMO Capital Markets