Linda S. Parenti, CFA
President & Chief Investment Strategist
Although we are just a week away from Thanksgiving, investors are unlikely feeling grateful for the recent market trends. For those of you who watch the markets daily, it certainly can be discouraging to see positive market openings repeatedly ending negative by the close of the day. Due to the increased volatility, it may seem hard to believe the S&P 500 is still up nearly 4% in total return year-to-date. Domestic large cap stocks, short-term fixed income, and cash are some of the few asset classes currently in positive territory.
The shift in market behavior seemed to start alongside the beginning of the fourth quarter. The U.S. economy appears strong overall, but there are areas showing signs of moderating growth. Inflation remains reasonable but has an upward bias. The third quarter earnings results have again been impressive, but company guidance is being toned down by trade and inflation concerns. All this is fueling fears about the Federal Reserve’s planned path of higher interest rates. A December hike is highly anticipated, but hawkish comments from Fed officials have Wall Street wondering when and where they plan to stop in 2019.
As always, there are numerous uncertainties confronting investors, but the Federal Reserve’s future course seems to be a main point of focus for the market right now. What they do directly impacts the level of short-term rates, yet indirectly influences other important variables such as the dollar, commodity prices, inflation, and economic growth.
Taking a step back from the trees, the big picture is good. Unemployment is low, wages are rising, the consumer is confident, the economy is healthy, and interest rates are still low relative to history. The Fed is correct to bring them back to more normal levels if done at a measured pace. During the nearly three years since they began normalizing interest rates, they have been prudently data dependent. Throughout this period, we have seen the economy and markets do well in the face of rising rates. If the Fed continues to follow this pattern, there is good reason to believe markets will return to a more positive trajectory.
RISKS AND IMPORTANT CONSIDERATIONS
Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.