4th Quarter Market Recap
Senior Research Analyst
Year End Market Update (12/31/2018)
Ending with a bang
A quarter to remember: midterm elections, trade wars, continued dollar strengthening, yield curve “inversion”, government shutdown, and the never welcomed change of dialogue to bear market territory. Up until recently, we have had an environment of historically low volatility and positive returns for the last decade and investing has been generally stress-free. Many investors have had a nice ride and it’s easy to take on risk when the market is going up, but that leads to unnecessary discomfort when the markets experience times of higher volatility. With the potential headwinds that will continue into 2019, it is an ideal time to ensure you are in the correct portfolio for your risk tolerance
All eyes will be on the Federal Reserve and headlines out of the White House for the next few quarters. The President has expressed his criticism of Fed Chair Powell and his recent interest rate hikes, specifically the most recent in December that pushed the US markets down over that 20% mark from all-time highs, signifying Bear Market Territory. If the Fed continues to raise rates when the economy is not as able and willing to operate with the higher levels, it could be the definite end of the rally. We have said this before, a bull market does not die of old age, there must be a catalyst – a Federal Reserve misstep, can definitely be that culprit.
Time to re-evaluate
With so much uncertainty in today’s political and economic landscape, investors are having a hard time finding conviction. There is one thing that is clear – volatility is here to stay. 85% of all trades are done by algorithms and computer trading programs. This means that when the markets trade based on new information, trade deals, political headlines, etc. it’s done quickly and aggressively; leading to stocks being oversold in times of weakness and overbought in rallies. Aligning your portfolio with your risk tolerance is key in this environment. Understanding the upside and downside risks associated with your investments will make the roller-coaster ride more bearable. Now is the time to re-evaluate what ride you want to be on. Trying to time the market is a losing battle. The basis of successful investing is founded on correct asset allocation aligning with your investment timeline.
Looking ahead, if substantial trade agreements come to fruition, we could see pockets of exponential growth, especially in emerging market areas. With that being said, the current landscape justifies a more cautious footing. We will have a clearer direction for US stocks as 4th Quarter earnings reports are announced in January. We have and will continue to adjust the risk budgets in our managed portfolios to reflect our views of the changing market climate. Thank you for your continued trust and we hope you had a wonderful holiday season.
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