Looking Back at November
November was perhaps the most volatile month in 2018. Two major conditions that influenced the market: The fear that the Federal Reserve Bank (Fed) would continue to raise interest rates in December (and several more times in 2019) and the uncertainty of trade with the possibility of increased tariffs. Both conditions “spooked” the market.
In addition,a few underlying conditions also influenced the market: the drop in oil prices and the slow down in some of the housing numbers. Bond rates have also continued to play a part in the market volatility. As the Fed raises the short-term rate close to the long-term rate and the yield curve (the difference between long and short term rates) flattens or becomes inverted, investors become anxious.
Looking Ahead to December
Both of the major conditions that spooked the market in November have been some what reduced. The first week in December, the Fed Chair commented that interest rates were beginning to normalize. He felt that the economy was close to its projected inflation rate.
Following the G20 meeting in Argentina, the US and China agreed to halt any increases in tariffs for a 90-day period, while talks continued between the two countries.
The US economy continues to look strong. However, we still anticipate a fair amount of volatility as the markets get used to this interest rate environment and flattening yield curve. At this time, we do not feel that these circumstances are enough in itself to end the bull market.
Remember, “time in the market is more important than timing the market.”
Liz Ann Sonders, Senior Vice President, Chief Investment Strategist, Charles Schwab & Co., Inc.,
The Best Way to Travel: Musings from Asia, November 19, 2018.
We are keeping an eye on events that may influence the market, such as tariffs and short-term interest rates hikes, as well as the overall housing market. As investors, not traders, we need to look further into the fall and the end of the year. We still believe that our allocations should tilt away from bonds and outside the U.S exposure. We will continue to closely monitor economic developments, as well as global events that effect the market.