After a wild and disappointing finish to last year, investors were bracing for more tough times ahead. Instead, with the S&P 500® Index knocking on the door of a bear market long in hibernation, suddenly and seemingly all at once, everything brightened. The two primary drivers of this drastic reversal in investor sentiment were budding optimism that the US and China would reach a trade agreement and the US Federal Reserve’s complete 180° on monetary policy.

There were many other bit contributors, too. Technical indicators suggested that markets were wildly oversold on December 24 and due for a rebound. Recession fears began to roll over. Corporate earnings were much better than investors’ worst fears. OPEC and its partners agreed to production cuts, fueling a rally in oil prices. Finally, China implemented massive monetary and fiscal stimuli to stabilize its domestic economy and protect it from a protracted trade dispute with the US. So, despite slowing economic growth and falling corporate profits, investors aggressively bid up stock prices. In fact, US market benchmarks produced their best four-month start to a year in decades. Investors donning rose-colored glasses and looking carelessly past the many risks on the horizon sparked a rapid expansion in market multiples, accounting for all of this year’s gains.

Now, amid what feels like an endless economic expansion and bull market, the score is all tied up after a bruising end to last year and an equally spectacular start to 2019. Inevitably, investors will have to settle into their seats for a while so they don’t miss the game’s next big play—because this lengthy cycle is headed into extra innings!

Extraordinarily easy monetary policies and curiously timed fiscal stimuli have made it difficult for investors to pinpoint exactly where we are in this never-ending cycle, crippling many classically reliable investment approaches and asset-allocation methods. Regardless of where we may be in the cycle, with the economy still expanding, corporate profits growing, and global central bank-manufactured low interest rates and benign inflation supporting higher-than-normal valuations, investors have little choice but to own risk assets. However, the breakneck pace of this year’s early gains is likely to moderate in the second half of 2019. Microbursts of volatility are now emerging as the outcome of the US-China trade negotiations has become far less certain. Investors should expect more fireworks in the second half, followed by periods of tranquility when global policymakers step in to calm markets with their reassuring quick fixes.

Our 2019 ETF Midyear Market Outlook, Headed to Extra Innings, suggests three strategies for positioning portfolios in this inexhaustible cycle:

  • Target quality, but don’t overpay
  • Let bonds be bonds
  • Tap growth in emerging markets

In the coming weeks, we’ll address each of these strategies in greater detail. Follow SPDR® Blog to see the whole 2019 Midyear Outlook series.