We hope our letter finds you and your families doing well and enjoying the holiday season.
Most recently we have seen quite a bit of volatility in the stock market, including two separate 10% declines. While such market drops are dramatic and disconcerting it’s important to note that nothing unprecedented is going on.
So, what is going on?
- Interest Rates are Rising – This scenario hits the earnings of tech stocks particularly hard as the cost of borrowing increases and hinders new project development. These are the very companies that had been driving stock market gains for most of 2018.
- Return of Volatility — Since the recession of 2008-2009, the stock market has experienced unusually low market volatility. The increased volatility in the last couple quarters is much more in-line with longer-term market trends.
- Investors are Taking Gains – Anticipating a high-rate environment, many investors are selling their holdings and taking their gains.
- Trade/Tariff Issues – The U.S.’s increasingly protectionist trade stance has led to tariffs on Chinese goods. Uncertainty is causing some investors to sell on emotion.
Although there seems to be a lot of negative news touted by the media, there are many positives that permit us to maintain our cautiously optimistic view on markets.
- U.S. economy fundamentals are strong.
- Valuations are sound for investors with a long-term time horizon, especially in international and emerging markets where there are significant discounts.
- While the volatility can be difficult at times to stomach, it has also historically created great investing opportunities.
- Unemployment is among the lowest levels seen in recent memory.
- Inflation is under control.
- While global growth is expected to slow, it is not stagnant.
As much as 2018 has felt like a roller-coaster ride for stocks, we still think the U.S. economic outlook is brighter than current market pricing indicates. Growth will likely moderate next year but the near-term odds of a recession remain quite low.
At this time, it is important to maintain a well-diversified portfolio and not overreact to recent moves in the market.
We place the upmost importance on you and your future and are honored to be part of your financial journey.
Warmest thoughts and best wishes for a wonderful holiday season and a very Happy New Year.