The stock market might have registered its best run if January performance is anything to go by. Those are sentiments shared by economists at Goldman Sachs. How the markets will perform going forward, is still a point of concern, given the headwinds at hand as well as the impact of varying economic cycles.

January Rally

All the major U.S Benchmarks rallied in January after coming under immense short selling pressure in October. The sell-off came on the heels of President Donald Trump triggering a ferocious trade war with China. The Nasdaq Composite Index, which accounts for the biggest concentration of technology companies, registered its biggest loss in two years after recording an 8% drop.

The Dow registered its biggest single-day drop of 831 points in October. The fall came as investors reacted to rising interest rates as well as trade war concerns expected to hurt company profits. The likes of Apple and Amazon registered their worst trading days in two and a half years as the overall market turned bearish.

Sanity appears to have crept back into the market in January as benchmark indices rallied in response to favorable market conditions. The Dow Jones Industrial Average was up by 16% from its lows registered in December. The S&P 500 spiked 16.3% as the Nasdaq composite index surged 19.3%. Data shared by FactSet indicates that the small capitalization index Russell 2000 jumped more than 20%.

Goldman  Sachs analysts believe that investors who did not take advantage of the January rally missed out on an excellent opportunity after the underperformance of the fourth quarter of 2018.

“We argued that a modest bounce at some point early in the year was likely, and if investors missed it, there would be a risk of missing the bulk of the returns for the year. The rally we expected has happened swiftly, and given this, we see relatively modest returns on equities from here,” said Sharon Bell, and Peter Oppenheimer, analysts and strategists at Goldman.

2019 Outlook

The strategists now expect the market to resort to trading in ranges after spiking in January. While the market is not expected to plunge back to December lows rallies may emerge as sell-off opportunities from where stocks could resort to trading in a downtrend.

Slowdown comes on the heels of one of the longest runs that saw the S&P 500 more than triple helped by U.S economic expansion as well as hefty profits from corporations. Fast forward, the threat of rising interest rates appears to have triggered a sense of fear in the investment community, curtailing further upward movements. Rising interest rates force investors to switch their capital from stocks to high yield investments such as bonds.

A flat and skinny trading range is what the markets would be reduced to, as part of an ongoing realignment after a steep pullback from one of the longest bull runs. The Goldman Strategists expect the favorable environment in the U.S made possible by an accommodative Federal Reserve would accelerate growth outside the U.S. Crude prices should also receive a significant boost having also lunged as stock prices came under pressure.

Speculation of flat and skinny trading range does not come as a surprise. Sluggish global growth is the latest concern fueling suggestions that the longest stock bullish run has lost its momentum. Emerging markets such as China have started experiencing slowdown compounded by a trade war standoff with the U.S.

Amidst the sluggish growth market environment, Goldman strategists believe there are still opportunities worth pursuing in the stock market. For instance, the firm remains bullish about prospects in the technology sector especially stocks of companies fuelling the digital economy as well as in the business service sector.