At 401(k) Engineers, it is very important to us that you are well informed about what’s happening in the markets. Here is a brief recap of what has been going on over the last month or so and what we expect in the month ahead. As always, please call us with any questions.
WHAT’S HAPPENING NOW:
- Interest rates – Not much has changed surrounding interest rates since last month. Most of the committee members continue to believe no more than two hikes are warranted in 2019, but the Chairman’s comments in December did not give strong indication we are near neutral rates. Rates along the yield curve, such as mortgage rates, have softened and helped home builders start to recover from a poor 2018. Like last month, we expect interest rates to be a constant stress on the marketplace, but the strength of the economy will carry markets upward in 2019.
- Trade War – President Trump has ramped up the pressure on China in the face of a looming trade deal deadline. With China’s economy slowing, no doubt in part to pressure from the United States tariffs, the administration is seeking a “real deal” now. There are many key issues to be addressed in the new trade deal, including intellectual property rights and the trade deficit. We expect these negotiations to last until last February as we approach the March 1 deadline. As those negotiations evolve, we expect a few volatile days in the markets as both sides use the media for leverage. Government Shutdown – The shutdown is the longest in United States history with no signs of a deal at the moment. At the center of the debate is roughly $5 billion in funding for a border wall. President Trump sees the wall as a key campaign promise that must be fulfilled, while Democrats feel the wall is antiquated approach and that better solutions are available. Regardless, this is as much a political situation as a practical one. Interestingly, markets have rallied for most of the shutdown – but we expect volatility to return to equity markets as the shutdown ages. We do not have a full understanding of the national economic impact as yet.
- Market Recovery – After the not-so-spectacular equity losses in December, the market has rebounded out of correction territory on the S&P 500. We have maintained the panic in December was overblown, fueled by seasonal tax loss harvesting in conjunction with fears on rates, the government and trade. However, we do not see the equity markets pushing to all-time highs again unless the key mentioned above are dealt with. Be prepared for volatile periods throughout Q1.
The month ahead: The focus of the markets will continue to be the ongoing showdown over the border wall and trade conflicts. The recovery in the stock market over the past weeks has been welcome, but we are concerned the key issues that lead to December’s dramatic downturn have not been overcome. We expect the government shutdown to end in the coming weeks with some form of a negotiation that allows both sides to claim a small victory, but we do not expect resolution with trade and China until late February or later. Be prepared for some nervous days and weeks.
The bottom line: We continue to see stable and healthy economic data. Currently, we have no economic data that supports a recession in the next 6 to 12 months.
The views expressed here reflect the views of Brian Peardon. These views may change as market or other conditions change. Actual investments or investment decisions made by Cambridge Investment Research and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon and risk tolerance. Past performance does not guarantee future results and no forecast should be considered a guarantee either. Moody's Corporation is the holding company that owns both Moody's Investor Services, which rates fixed income debt securities and Moody's Analytics, which provides software and research for economic analysis and risk management.