The Bears have dominated for the first time since 2011! And no, I’m not talking about the ones in Chicago!

Europe

Concerns in Europe were wide spread last week. The Brexit situation escalated to a no confidence vote in Prime Minister May, which she won in literal terms. For all practical purposes her strength has been reduced, preventing any real chance of getting her version of Brexit passed. The European Central Bank (ECB) brought their bond buying program to a close. This was a telegraphed move that surprised no one. The ECB also reduced their projections of growth for the coming year. France cut taxes and raised benefits for low wage earners. By doing so, they increased their net spending above the 3% of GDP level allowed by the EU. The Italian government’s budget which attempted to come in at 2.4% of GDP was summarily dismissed by the EU. As a result, France may have a hard road ahead.

Trade

It is hard to believe, but trade was a bright spot on the economic environment last week. Trade negotiations are moving along between the US and China. China made some key concessions in their “China First” initiative for 2025, regarding the Tech industry. Industrial production out of China came in at a tepid pace last week. This has led many to believe China is likely to make more concessions going forward.

Federal Open Market Committee (FOMC)

All eyes will be on the FOMC meeting results on 12/19/2018. When they last raised rates (September) they were indicating one more for 2018 and 3 more for 2019. While a hike for December is still likely, many will be looking for guidance for 2019. Markets have priced in a likelihood of no hikes in 2019. Should FOMC language still point to multiple hikes next year, then volatility on markets will likely continue.

Conclusion

To be clear, this is not a bear market. Markets have not declined enough to be consider so. The last bear market was in 2011 when the US Government breached the debt ceiling. Thus far, this has been an orderly correction. Meaning that riskier assets have been sold to buy more conservative assets. Expectations of higher interest rates have eroded, and the risks of an economic slowdown increase in the next few years.

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