Market Commentary, 12/11/18

Last week saw the largest one-week decline in nine months with all three indices off just under five percent. Much of the week’s decline came on Tuesday, with each of the major indices down more than three percent.

Yesterday (12/10/18) the Dow dropped briefly into Correction Territory over ongoing US-China trade concerns … but after being down 508 it rebounded and closed up 34. (Technically the market is considered in a “correction” when it drops 10% or more from its high.)

Over the long run, the markets have risen since the economy came out of recession almost ten years ago (spring 2009) but during that time, there have been six corrections, none of which reflected significant downturns in the market or in the economy.

Obnoxious though they are, corrections are an inevitable part of a bull-run and on average, they come every two or three years (note the chart). In the last 20 years, there have been 10 corrections and only two led into bear markets, which are defined as a decline of 20% from the high. The first was 03/2000 to 10/2002 and the second was 10/2007 to 04/2009.

Trade concerns are the primary factor that’s been hitting the stock market this year, not necessarily because what the President wants trade-wise is so bad for the markets but because the markets abhor uncertainty more passionately than nature abhors a vacuum. Last weekend President Trump and Chinese President Xi agreed to a 90 day truce on tariffs sending the market up on Monday. This trade war “cease-fire” sets a deadline of 03/01/18 for trade negations.

Even when the trade war is resolved, the number of Fed rate hikes next year continues to be a major point of uncertainty. Based on the September Fed meeting, the expectation has been that they will increase interest rates this month, three times next year and one more time in 2020 … and given recent market volatility all eyes are on the December 19 Fed meeting. A rate increase is expected, but the meeting might give insight about whether there will really be three increases in 2019. (www.wsj.com)

When these two issues – trade and Fed rate hikes – are resolved, or at least accepted by the markets, the bull market likely has another year of steam.

Regards,
Jeremiah Patterson, CFP®
Copelin Financial Advisors
514 Brooks Street
Sugar Land, TX 77478
Phone: 281 240-2902
Fax: 281 240-2856
jeremiah@copelinfinancial.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.

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