January 2019 Economic Update / Additional information
Dear TVFP Clients -
We hope your new year is off to a great start! A couple of things we wanted to bring to your attention:
You should have received your year-end statement from Waddell & Reed by now. If by chance there are any remaining funds in any of your accounts, please let us know so we can resolve this.
It is very important to us that you are well informed about what’s happening in the markets. Here is a brief recap of what has been going on over the last month or so and what we expect in the month ahead.
What’s happening now:
- Interest rates – Not much has changed surrounding interest rates since last month. Most of the committee members continue to believe no more than two hikes are warranted in 2019, but the Chairman’s comments in December did not give strong indication we are near neutral rates. Rates along the yield curve, such as mortgage rates, have softened and helped home builders start to recover from a poor 2018. Like last month, we expect interest rates to be a constant stress on the marketplace, but the strength of the economy will carry markets upward in 2019.
- Trade War – President Trump has ramped up the pressure on China in the face of a looming trade deal deadline. With China’s economy slowing, no doubt in part to pressure from the United States tariffs, the administration is seeking a “real deal” now. There are many key issues to be addressed in the new trade deal, including intellectual property rights and the trade deficit. We expect these negotiations to last until last February as we approach the March 1 deadline. As those negotiations evolve, we expect a few volatile days in the markets as both sides use the media for leverage.
- Government Shutdown – The shutdown is the longest in United States history with no signs of a deal at the moment. At the center of the debate is roughly $5 billion in funding for a boarder wall. President Trump sees the wall as a key campaign promise that must be fulfilled, while Democrats feel the wall is antiquated approach and that better solutions are available. Regardless, this is as much a political situation as a practical one. Interestingly, markets have rallied for most of the shutdown – but we expect volatility to return to equity markets as the shutdown ages. We do not have a full understanding of the national economic impact as yet.
- Market Recovery – After the not-so-spectacular equity losses in December, the market has rebounded out of correction territory on the S&P 500. We have maintained the panic in December was overblown, fueled by seasonal tax loss harvesting in conjunction with fears on rates, the government and trade. However, we do not see the equity markets pushing to all-time highs again unless the key mentioned above are dealt with. Be prepared for volatile periods throughout Q1.
The focus of the markets will continue to be the ongoing showdown over the border wall and trade conflicts. The recovery in the stock market over the past weeks has been welcome, but we are concerned the key issues that lead to December’s dramatic downturn have not been overcome. We expect the government shutdown to end in the coming weeks with some form of a negotiation that allows both sides to claim a small victory, but we do not expect resolution with trade and China until late February or later. Be prepared for some nervous days and weeks.
Bottom Line & Course of Action: Clients Only
Your TVFP team is here for you. Please call us with any questions or concerns.
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