With the recent decline in stocks beginning on October 3rd, many of the TV talking heads are now pontificating the end of the bull market and beginning of much larger declines to come. It is interesting that many “experts” on the cable stations were also talking about how cheap stocks were earlier this year when markets were at all-time highs. I think it is fair to say that cable networks like to bring on guests that keep viewers tuned in, regardless of how wrong they may be, or have been in the past.
It is also fair to say that stocks can be risky in the short-term, and that anyone with a short-term time horizon should probably not be in stocks. With this said, we believe we are amid a healthy correction and do not believe that the bull market has ended.
We base this on several characteristics of a bear market (a decline of 20% or more from a recent market high). They are listed below:
- Recession: This takes a decline of two consecutive quarters of Gross Domestic Production (GDP), which is a slowing of trade and industrial activity in the U.S. Currently the economy is strong. Although there will be headwinds that the U.S economy will face in 2019 (and growth rates will likely be lower than this year), we feel confident that overall the economy will still be growing.
- Overly Aggressive Federal Reserve: Fed Chair Jerome “Jay” Powell’s recently backed off his hawkish comments regarding interest rate hikes in 2019. Although the Federal Reserve will continue to raise interest rates, many now believe there will be less than three rate hikes next year. Therefore, we do not believe we have an overly aggressive Federal Reserve currently.
- Higher Inflation: With the year over year consumer price index (CPI) near 2.3%, as well as a falling 10-year treasury note, currently under 3%, we do not believe inflation to be a problem.
- Corporate Earnings: Although they may slow next year, corporate earnings are still projected to be strong in 2019.
- High Unemployment: Unemployment is at its lowest levels in decades. Forecasts project continued low unemployment.
In conclusion, we believe there will be challenges for the equity markets next year ranging from trade wars to rising interest rates. At the same time, we believe stock market fundamentals, which we feel are strong, will lead the market higher. It is a time to be patient, stay the course, and even add to equity positions if you have been looking to do so within the past year or so.
We wish everyone a wonderful holiday season, as well as a happy and healthy New Year. As always feel free to call us or recommend us to someone you know who may be in search of our services.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
Investing involves risk including loss of principal. No strategy assures success or protects against loss.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.