The Return of Volatility

Remember 2017 was actually an abnormal year for how little volatility we had.

This year is more “normal.

As I have been discussing this year, we’ve been expecting a meaningful pickup in volatility, particularly after the unusually benign conditions that characterized last year. Remember 2017 was actually an abnormal year for how little volatility we had.

This year, however, has not disappointed for volatility as we saw a huge downturn in the stock market in February following an unexpected pickup in inflation, and again in March amid a ramp-up in US.-China trade tensions. However, stocks recouped the losses both times once investors refocused on the economic growth and corporate profits.  Both of these remain quite strong and are even expected to continue to help us grow in 2019.

I do want to bring up the fact that there are market indicators that are flashing bearish signals, like housing and autos sales, and we may have seen a peak in corporate earnings growth. We are looking at the data very closely, the reality is that recessions have historically lagged a peak in earnings growth by more than 18 months. Also, the impact of tax cuts, federal spending, and repatriation of earning back into the US is likely to outweigh the negative impact of tariffs by a factor of five,

U.S. economic growth next year is likely to come in around 2.5%, and corporate profits may grow near 10%, all of which will reinforce a still very healthy environment for you to invest.

The Federal Reserve may also be less aggressive with its rate-hike campaign next year and stocks may become a better place to be invested.

All of this to say, while the volatility now is painful to go through, we still see opportunities.

Please call us as you have questions.  Take care.