- U.S. stock markets were down in the 4th quarter ~ as were developed international and emerging market equities, though somewhat less so than domestic equities.
- The S&P 500 ended the year down for the first time since the global financial crisis.
The partial government shutdown is creating uncertainty as to the extent of the effects it will have on consumer spending and business activity.
Some indications of dovishness from the Fed Chair actually provide clarity.
Trade negotiations between the U.S. and China continue and could expectedly facilitate continued market volatility.
Domestically, there are some “negatives” in the mine of economic data, like a slower pace of U.S. growth, housing market weakness, and a downtick in business confidence, yet there are still significant positives. Recent jobs reports were quite good and well exceeded expectations. Wage growth is also positive, which is truly a “positive” as it puts more money directly into consumers hands. So in spite of the gloomy political headlines, there are still genuinely good things happening that support our economic growth. Though there is no doubt that growth could be decreasing and Fed policy error is a downside risk.
Economies outside of the U.S., particularly in Europe, have changes that need to be addressed. The U.K. is scheduled to leave the EU this year and there will likely be some new leadership throughout Europe. Some of these changes on top of trade negotiations could impact global economic growth and certainly hurt investor sentiment and drive risk of trading and emotional investment behavior.
Earnings estimates for US companies are being revised down after reaching new highs. Valuations are more attractive thanks to market corrections. In the long term we expect valuations to lead to price increases, but we caution investors that valuations are not a market timing tool. And if downward volatility continues, patience will be tested.
It’s a new investment year and as it unravels and as new information becomes available we look forward to market opportunities that will provide long term growth and hopefully positive returns for 2019.