Happy New Year | January 4, 2019

Happy New Year! For many investors, this new year brings new hope that 2019 will look more like 2017 rather than 2018!  Let’s run the play-by-play by looking at each 2018 quarter…

First Quarter

The reality is that not all of what came out of 2018 was terrible!  The first quarter started much as 2017 had ended.  January marked continued market strength on the back of tax reform passed late in 2017.  As the calendar rolled over to February, however, the tone in the markets changed dramatically. The January jobs report caused markets to be concerned about future inflation risks as wage growth exceeded expectations. These concerns caused a technical correction (a fall of 10% or more).  As markets were starting to rebound, the word of the year took center stage… “Tariff”!  This caused markets to retest and surpass the lows from February.

Second Quarter

Q2 2018 saw a combination of optimism and concern.  On the one hand, we saw strong corporate and consumer spending during the second quarter on the back of tax reform. But on the other hand, we also saw the word tariff become more of a reality. Strength in spending led to 4.2% GDP, but concerns around potential tariffs kept market growth fairly in check.

Third Quarter

The third quarter saw the implementation of tariffs on Chinese goods totaling $250B! This was the largest concern on markets, however, several other things allowed markets to rebound from their March lows:  Apple becoming the 1st $1T company, Brexit undulations, second quarter earnings, and the USMCA (formerly NAFTA) agreement.  These events (at points) allowed the markets to ride a wave back to all-time highs!

Fourth Quarter

Then there was the fourth quarter!  Not nearly as kind to us as Q3.  As did the first correction of the year, the second one also began with concerns over future inflation based on unexpected wage growth.  Italy did what it could to help (dripping with sarcasm) by defying EU budget standards.  Not to be outdone, the US began looking as though it was on a crash course with a government shutdown–which eventually came to be.  All of this caused continued turmoil while little news was coming out to help the economy.  Manufacturing remained steady while Services showed great strength, Inflation remained muted, and headway was being made with China!

In all, it took hitting a technical Bear market on Christmas Eve for markets to bounce back from an over-sold state.  It could bode well for 2019 with prices pulling back in 2018. Inflation will likely remain subdued. A more cautious Federal Reserve Bank could cause a renaissance in equity values.  Tune into Market Thoughts this year for a weekly update!


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