Looking Back at December
I’m sure we’ve all had a few sleepless nights over the market the last few months. And, being anxious over the swings is understandable. There are several reasons for the volatility – some, somewhat logical; others, emotional:
1) Computer algorithms that trigger buy or sell signals when certain limits are hit
2) Investor fear
3) Trade discussions with China
4) Low stock market volume due to the holidays
Each reason is not enough to cause the amount of volatility we have experienced, but in total it has caused investors to be anxious, anticipating the chance for a recession in the future.
The economy is very strong and moving ahead nicely. There are no immediate signs to indicate differently. Markets may grow more slowly next year, but they are expected to continue the growth started in 2017. Most analysts feel that earnings growth next year will be around 8%. The current market price levels are reflecting that earnings growth will be at 0% next year, which is highly unlikely.
Looking Ahead to January
U.S. companies have continued to report strong earnings. Consumer sentiment has continued to be strong, with an excellent holiday sales report.
As we mentioned last month, while the US economy continues to look strong, we do anticipate a fair amount of volatility as the markets get used to the new interest rate environment. At this time, we do not feel that these circumstances are enough in itself to end the bull market.
We are keeping our eye on events that may influence the market, such as tariffs and short-term interest rates hikes. We do expect higher volatility in 2019 and we anticipate making allocation changes in certain portfolios to address this added risk.
As always, we will continue to closely monitor economic developments, as well as global events that can affect the market.