Dear clients and friends,
At Perseus Wealth 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. As always, please call us with any questions.
What’s happening now:
- Election Results – Even with some drama and close races in Florida, Georgia and Texas, election night ended much as expected. The Democrats took control of the House, and Republicans maintained control of the Senate. Equity markets typically like certainty and confirmation of the expected results led to a very brief rally in US equities. However, equity market growth may be depressed going forward if a gridlocked government can’t pass anything until the next election cycle in two years.
- Fed Minutes – Recent volatility has investors paying close attention to the Federal Reserve’s comments. Declaring in early October that the Fed rate was “a long way” from neutral (after which the stock market plunged to correction levels in less than 30 days), Chairman Powell reversed course dramatically during the week of November 26th, announcing that the Fed rate was “just below” neutral and setting off the best one day market surge in recent months. While some question whether President Trump’s insistent and vocal displeasure with the Fed’s tightening had a major role in the change of course, it appears that the Fed’s original target of 3-4 additional increases next year may be reduced or eliminated, setting a brighter stage for a possible Santa Clause rally.
- Oil Tumbles – A barrel of WTI Crude Oil has fallen over 25% from its high of $76.24 on October 3, 2018. Largely explained by lack of demand, such a swift drop can cause ripple effects through asset prices linked to oil. The Vanguard Energy ETF (VDE) has fallen over 15% since October 9, 2018. In general, lower oil prices are good for consumers as input costs and consumable products cost less. However, short term volatility in oil can cause larger scale volatility across equities.
- Brexit – It’s been almost 2.5 years since the vote for the United Kingdom to leave the European Union. Prime Minister Theresa May has failed to get ample support for her exit plan. This has led to several departures from Westminster. The questions now are whether the EU drafted plan will be adopted at all and if May will survive as Britain’s leader - Parliament members are calling for a vote of no confidence in the Prime Minister. This, and other troubling headlines from outside the US, are part of the reasons why US domestic equities have significantly outperformed their offshore counterparts over the past several months.
The month ahead:
The Fed rate decision in December will be the last major economic data read for the year. Assuming another increase happens, markets should continue to trend sideways to slightly upward to end the year. Good news related to trade with China or an approved Brexit agreement, combined with continued positive corporate earnings and the Fed’s recent change of course, would increase the possibility of a Santa Clause rally. Given the relatively flat year to date performance of the domestic markets, such a rally could put domestic calendar year equity returns in the low-mid single digits come New Year’s.
The bottom line:
Stable and healthy economic data continue to be the norm. At this time, despite recent market volatility, there is little economic data that supports a recession in the near term or intermediate future.
John and Sean
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. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that any strategy will be successful.