December 2018: A December to RememberSubmitted by MidWestOne Investment Services on January 2nd, 2019
Let’s start with the positives. As someone who usually spends a lot of time traveling during the holidays, I am very appreciative to whomever paid off Mother Nature this year and allowed us to not only skip the white Christmas thing, but kept temperatures very moderate and enjoyable. I am sure we will get our fill of cold and snow before the winter ends, but I could get used to this type of season.
Now for the not so positive. To paraphrase a car commercial running on television, this has certainly been a December to remember. Last week, the Federal Reserve raised interest rates again but lowered their projections for future increases. That didn’t comfort the markets. Then, Congress failed to strike a deal over the Federal budget and the government partially shutdown (only approximately 5%). Discomfort continued over the weekend as President Trump continued his criticism of the Fed and rumors flew that he was considering firing Chairman Powell (even though he may not have that authority). And our Christmas Eve present was Treasury Secretary Mnuchin’s attempt to calm the markets by asking large banks to confirm their liquidity and looking to create a “Plunge Protection Team”. The attempt didn’t work as we endured the worst stock market decline on Christmas Eve ever, putting us on the edge of a bear market. More positively though, the hoped for Santa Claus rally kicked off yesterday with the largest single day point gain in market history. Can it be sustained? Only time will tell……
I recognize the paragraph with bad news is longer than my good news paragraph about the weather, so here is some additional perspective to the bad news. The average peak-to-trough decline in a midterm election year is 16%. After years of low volatility, this batch of slightly above normal volatility in 2018 doesn’t feel great, but it isn’t outsized or even terribly unusual. And more positive news is that since World War II, the S&P 500 has never declined in the 12 months following a midterm election (18 for 18). One last positive tidbit, over the last few years, we have continually heard how the market was overpriced and the P/E ratios were above historical norms. Well, we fixed that problem with the market pullback, and the P/E ratio for the S&P 500 is now slightly below the long-term average. Many of these stats are compiled from the LPL Research blog, which gives a great look behind the curtain.
All of this, the good, the bad, and the ugly provide strong reminders of the importance of planning. Most of us have plans for the simplest things in our lives. It only makes sense to have a plan for one of the most important things, our financial security.
And finally, here is the link to the outlook for 2019 from LPL Research. There is still hope for us
We look forward to our continued partnership in 2019 and beyond. Please be sure to let us know if we can help you with any questions or concerns you may have.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.