Market Commentary, 12/18/18

Last week stocks seemed to be on the way to recovering from the prior week’s steep decline (the Dow was down 5.4% for the week ending 12/07/18) … at the close last Thursday (12/13/18) the Dow was up 236.4 (1.0%) for the week even though it had started weakening Thursday afternoon. Then, on Friday all three major indexes fell dramatically to close the week with the Dow and S&P down slightly over 1.0% and the Nasdaq down just under 1.0%.

Yesterday the stock market continued its not-to-be-understood action with all three indexes falling over 2%. And intraday swings have been unprecedented, e.g.,last Wednesday (12/12/18) the Dow swung 570 points from high to low and changed direction seven times. Yesterday the Dow opened at –240, came up to –30, at one point was –644 and closed –507 at 23,593. In fact, most of this year has been characterized by extreme stock market swings. For example, the spread between the S&P 500’s daily high and low has exceeded 1.0% on 100 days this year… and there were only ten such days in all of 2017. (www.wsj.com)

I said the market’s action is, “not-to-be-understood” because, based on economic and stock market fundamentals – unemployment figures, GDP growth, P/E ratios,corporate earnings etc. – there seems to be no clear reason for the extreme volatility or for the market’s decline from its all-times highs of just eleven weeks ago … which by default, brings us back to the principle that the stock market abhors uncertainty. In this case, uncertainty about trade issues between China and the U.S., potential Fed action in 2019 and as of the past few days,uncertainty about how the UK will implement Brexit.  (Source: Sherman Sheet)

Regarding trade and China, in the past few days Chinese negotiators have signaled their willingness to reduce tariffs on US automobile imports and to increase purchases of US soybeans and this is positive. But it remains unclear whether the two sides will reach a broader agreement prior to the President Trump’s March 1, 90-day deadline we mentioned last week.  (www.bloomberg.com)

Regarding the Fed, another increase in short-term rates is expected tomorrow (12/19/18).This would be the fourth increase this year and it would raise the Fed funds rate to a range of 2.25% to 2.50% … but again, the real question is, “What is the Fed’s sentiment toward increases in 2019?”

Regarding the outlook for the UK’s exit from the EU, last week Prime Minister Theresa May failed to secure parliamentary backing for the Brexit agreement she recently negotiated with EU leaders. But the situation became a little less muddled last Wednesday as the PM withstood a test of her leadership by surviving a confidence vote among members of her Conservative Party. 

Relative to the question, “What should I do?” this is one of those times when the best course is probably to do nothing … or to slightly increase your equity holdings if you have cash available.

I hope you and yours have a wonderful Christmas.

Wayne Copelin, CFP®
President, Copelin Financial Advisors, Inc.
514 Brooks Street
Sugar Land, TX 77478
Phone (281) 240-2902
Fax: (281) 240-2856
sugarlandfinancialadvisors.com

Securities offered through ProEquities, Inc., a Registered Broker-Dealer and Member FINRA & SIPC Advisory Services offered through Harvest Investment Services, LLC., a Registered Investment Advisor Copelin Financial Advisors, Inc and Harvest Investment Services, LLC are independent of ProEquities, Inc.