The Independent Market Observer
The Independent Market Observer
Commonwealth’s chief investment officer, Brad McMillan, provides insight on the economic, market, and political events of the day—both domestically and on a global scale.
The good news is that confidence continued to be strong last month. Business sentiment remains close to a 21-year high, and consumer confidence remains very close to an 18-year high. Although job growth declined, it was after a very strong month, and it remained at healthy levels. Longer-term interest rates, which had been a concern after a spike, also moderated. Overall, the economic news remains solid, which should support continued growth.
What can we expect from the market in 2019? I discussed this and more on CNBC's Power Lunch today.
Both October and November were roller-coaster months. October took us down, and November took us further down only to bounce and finish slightly up. Now, as we move to the end of the year, we are seeing more downward movement, although there are signs that may be passing. As investors, we should probably be checking for whiplash, as this has been a wilder ride than we have seen in years.
We are now in the third month of the stock market decline, with the S&P 500 getting close to correction territory (i.e., down 10 percent from the peak). Although there have been three attempted rallies, in each case the market has declined again. From a technical perspective, important trend lines have been broken, which increases the risk that the decline could get worse. Is it time to worry?
Last week was a busy one on the economic front, with several key reports. This week’s data starts with prices and whether they indicate that inflation is picking up.
We closed the last post in this series with the observation that, even if the U.S. “won” the trade war, there would be collateral damage—both here and throughout the world. That turned out to be a timely point, as we have seen in the financial markets over the past week.
As we approach year-end and you look at your investment statements, there is bound to be much discussion about how your investments performed. As has become usual in the past couple of years, there will be questions about and comparisons between what we expected and what we actually got. In other words, with the economy doing well, why aren’t your investments doing better?
Yesterday’s market drop reversed all of Monday’s gain and then some, reportedly on growing doubts regarding the exact terms of the trade war truce announced by President Trump. That might be the case, but I suspect the headlines pointing out that part of the yield curve had inverted played a bigger role in the decline. This inversion is usually a sign of economic trouble, so it would make sense for the market to pull back. The problem is that, while technically true, the inversion we saw typically indicates that trouble will show up in a couple of years—if it does at all. If the market was reacting to the inversion, it was overreacting.
November was a rocky month. Concerns surrounding the midterm elections, the trade conflict between the U.S. and China, and the economic slowdown resulted in market turbulence. Still, the financial markets bounced back. Here in the U.S., the Dow, the S&P 500, and the Nasdaq all had some gains. Abroad, the emerging markets rebounded strongly. Even bonds made money, despite interest rate turmoil.
Last week was a busy one on the economic front, giving us a wide range of views on where the economy is going. This week will also be busy, with several key reports.
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