By Matthew Gaude & Shawn McGuire
With 2018 in the rear-view mirror, what can we expect the behavior of the markets to be in 2019? Should the volatility seen in the last few months of 2018, especially in October through December, be a concern for investors? In addition to the recent volatility (which is perfectly normal during market cycles), there are many other headlines and considerations that are on the minds of investors. Concerns at the top of the list include the government shutdown, trade wars, interest rates and the Fed’s monetary policies, tightening financial conditions, decelerating growth, and presidential uncertainty, to name a few. How will the market react, and which way will the market go in 2019?
Nobody has a crystal ball to predict how everything will pan out in 2019. However, given what we know about markets and considering what is most likely, here is how we expect the market to behave in 2019.
The Fed Will Raise Rates In 2019
While this is no surprise to anyone paying attention to the Federal Reserve’s actions, it is important to note that we will be seeing additional rate hikes from the Fed in 2019. The last interest rate increase we saw in December 2018 had the target range for the Fed’s benchmark funds rate going from 2.25% to 2.5%. After that meeting, we found out that the Central bank officials now forecast two hikes this year, down from three rate raises previously projected.
It is important to note that the market saw dramatic drops during Secretary Powell’s press conference, hinting at investors’ worry about the Fed’s need to continue increasing rates.
What we must understand is that this process, where the Fed adjusts rates, is a normal and healthy component of what makes our markets go. By looking at GDP growth, unemployment rates, and other economic indicators, the Fed uses their policy tools to do their best in stabilizing the economy. Again, to the point that nobody can time the market, depending on what actions the Fed takes (and when), investors and markets will react accordingly.
Politics Will Heavily Impact The Markets
In addition to how markets respond to President Trump’s actions (and tweets), there are several major policy issues that have the potential to impact the markets in 2019.
First, we must certainly consider the trade war with China. The longer that this goes on without a resolution, the more investors will begin to get antsy. This will lead to fear, and we will see U.S. investors panic. We have already seen some of the impact that China can have on such a large company like Apple, and we can only imagine what other impacts we will see that have the potential of stemming from trade war-related companies.
Next, we must consider the impact of the government shutdown as it relates to how President Trump wants to spend the government’s money versus how the Democrats want to spend it. The longer that we have a government shutdown, the more strain we will see on the economy. Granted, the shutdown is not far-reaching into major sectors, but depending on how long this lasts, we will still see trickle-down effects from government workers that do not have their normal income to spend on consumption.
Finally, with the election of 2020 looming, it will be interesting to see how the markets respond to the future candidates that come to the surface. We’ve recently heard that Elizabeth Warren is most likely to put her bid in for 2020. While just knowing the future candidates does not necessarily affect markets, the campaign messages and key policy initiatives that come through the woodworks during 2019 do have the potential to impact investor behavior.
What To Watch For In 2019
- Expect continued volatilty this year in the stock market
- Jobs-A larger than expected decline in the ISM Manufacturing Index and a revenue warning from consumer electronics giant Apple & Samsung led to a decline in the stock market on January 3.
- An unexpectedly strong December payroll report and soothing comments from Federal Reserve Chairman Jerome Powell encouraged investors to buy stocks one day later. At this time, the outlook for the job market should continue to lead to low unemployment as well as the potential for the Federal Reserve to raise interest rates in 2019.
- Profit Outlook-S&P 500 profit estimates have fallen form the 4th quarter of 2018 from an estimate of 20.1% year-over-year growth to 14.0% (from a high 28% in Q3 2018) due to slowing global growth, moderation in US growth as well as lower energy prices (Refinitiv).
- Government shutdown-The partial government shutdown is the longest on record-27 days as of January 18. Historically, shutdown have had little effect on stocks. While estimates on the impact to the economy vary, thus far, stock market action suggests little long-term economic impact.
Your Next Step
In January 2018, we started recording quarterly market reviews and strategy update webinars to keep you informed on the stock market, economic updates as well as strategy updates we have implemented in our client accounts. Other than 1-on-1 meetings or web-meetings, we have found, based upon feedback, that this is one of the best ways to keep you updated.
Make sure to watch our 2018 Year in Review and 2019 Preview and Strategy Update webinar. We discuss the stock market in 2018, some of the reasons for the decline in the 4th quarter, as well as what to expect in 2019 and our Strategy Update. You can go to https://liveoakwm.easywebinar.live/replay-9 to watch our most recent update. You can also go to our website www.liveoakwm.com and at the top of the page click on the 2018 Year in Review and 2019 Preview and Strategy Update link to view the webinar.
If you’re interested in learning more about how we see the market in 2019 and how it may affect your investment portfolio or financial plan, please call my office at 770-552-5968 or email firstname.lastname@example.org. You can also simply schedule an appointment online.
Matthew Gaude is an *investment advisor representative and the co-founder of Live Oak Wealth Management, a financial services firm in Roswell, Georgia. He serves the planning and investment needs of corporate employees, those approaching or in retirement, and 401(k) plan sponsors. Working first as a commodity broker and then as a Business Development Manager for a national broker-dealer in previous jobs, he has the insights and experience to help clients understand the complexities of the market and implement strategies to minimize risk. To learn more about Matthew, connect with him on LinkedIn or visit www.liveoakwm.com.
Shawn McGuire is a financial advisor and the co-founder of Live Oak Wealth Management, a financial services firm in Roswell, Georgia. He serves the planning and investment needs of corporate employees, those approaching or in retirement, and 401(k) plan sponsors. He has worked in financial services since 2002 in positions ranging from financial advisor to stock broker and portfolio manager. As a CERTIFIED FINANCIAL PLANNER™ professional, he is trained to help clients with virtually all their financial needs. To learn more about Shawn, connect with him on LinkedIn or visit www.liveoakwm.com.
Securities offered through American Portfolios Financial Services, Inc., member FINRA/SIPC. Investment advisory services offered through *American Portfolio Advisors, Inc., a SEC Registered Investment Advisor. Live Oak Wealth Management, LLC is independently owned and not affiliated with APFS or APA.
Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc. (APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk, and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.