Many analysts generally link recent market jitters to uncertainty surrounding trade, Fed rate hikes, and global growth prospects into 2019. Of these, the “business cycle is one of the most important drivers of investment performance” (Guggenheim).
According to Earnings Insight, analysts see single-digit earnings growth for the first three quarters of 2019, signaling a slowdown in growth prospects.
A number of macroeconomic factors further pressured the markets in November.
Trade deals
The Group of Twenty (G20) summit in Argentina produced two significant trade deals for the United States, a revised trade agreement with Canada and Mexico as well as a trade tariff truce with China. While initial reception was positive, skepticism surrounding the trade truce with China soon emerged around the details of the trade agreement.
Market volatility
Volatility continued into November spilling over from October’s trading frenzy. All major equity indices saw their gains for the year vanish in mid-November, then rebound at month-end to recapture some of those same gains. Many analysts believe that lower stock valuations are creating buying opportunities for investors.
Market uneasiness was amplified by a drop in oil prices, which declined to levels last seen in late 2017. Analysts attribute the slump to rising supplies and a perceived slowdown in the global economy.
Fed rates
The Fed signaled that it may scale back projected rate increases in 2019. The Fed believes that rates are currently at a level just below its neutral stance, which Fed members estimate to be near 2.9 percent to 3 percent.
Political pressure
The shift in leadership within the House of Representatives leaves various regulations and economically sensitive bills open for debate, yet infrastructure is believed to be a topic of agreement for both parties. Build America Bonds (BABs), which are taxable municipal bonds introduced under the prior administration, are expected to help expand and fund infrastructure projects nationwide. In addition, both parties wish to reduce taxes further for the middle class.
Volatility expected
Market pullbacks are common. According to Guggenheim, the S&P 500 has declined between 5 and 10 percent 78 times since 1945, and it took an average of one month to return to its previous level.
Although unnerving, these are the moments we plan for when devising a financial plan. If your portfolio is well-diversified and aligned to your risk tolerance, goals, and time horizon, stay calm and carry on.
How comfortable are you with your game plan for weathering an extended period of market instability? Schedule time with your Wambolt Advisor to take a closer look.
Sources: g20.org, Federal Reserve, NFR, IEA, Commerce Department
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