It’s a shiny new year with a new set of resolutions, but investors may be struggling to find their optimism! The past several weeks have been difficult, as the stock market sell-off resulted in the worst December performance since 1931. Often a dramatic decline can lead to reactions driven by fear and an instinct to protect ourselves from further losses. Although it can be hard to separate our emotions from our investment decisions, it’s important to focus on facts over feelings. That means remembering the tried and true tenets we rely on—stick to an investment plan, ignore the urge to sell near the market bottoms, and maintain a long-term perspective.
While we recognize the challenges facing the market today, we maintain confidence in the foundation supporting economic growth and corporate profits in 2019. The pace of growth is expected to slow in 2019, but fundamentals still indicate solid potential stock gains.
However, it may take some time for the market to turn around, given the severity of the damage. Several factors are weighing on investor sentiment right now: trade tensions with China; weaker oil prices; the path of interest rates; and the uncertain political environment, notably the government shutdown. Consequently, a few major domestic and global equity indices have slipped into a bear market (a decline of 20% or more from recent highs).
It’s important to know that we could enter a bear market without the economy experiencing a recession. It is possible that a “self-fulfilling recession” may develop: as political and trade uncertainty lead to falling asset prices and limit business investment, growth in productivity, employment, and consumption could also slow down. However, given the current record levels for U.S. gross domestic product, high employment, stable inflation, and manufacturing and services reports that are still indicating expansion, a recession looks to be unlikely for 2019.
In a new year, we all want to look ahead with a renewed sense of optimism. Certainly, the current political and market environment makes this challenging. But a new year is also about making resolutions for positive long-term changes, having the discipline, consistency, and dedication to see them through.
I’d like you to take this perspective as you follow the markets and the news. The fundamental backdrop supporting growth in the economy and corporate profits remains sound. Companies have a long and successful history of finding ways to adapt, recover, innovate, and grow. If we can maintain our commitment to focus on those fundamentals and rely on the right guidance, we can remain on track in pursuit of our long-term investment goals.
As always, if you have any questions, I encourage you to contact me.