The financial market’s volatility in recent weeks has reminded many investors of the importance of discipline and diversification. As the stock market’s recent gyrations clearly illustrated, volatility has returned and will likely continue. Rarely pleasant in the moment, this volatility was expected and a part of the consolidation process we believe is ultimately healthy for the ongoing march forward in stock market values.
Tariffs in 2018
There is no question that tariffs and increasing interest rate fears have impacted both stock and bond markets in 2018. However, they do not appear to be materially impacting America’s economic growth at this time. Many market pundit’s worries of the United States protectionist trade policies morphing into a global trade war are dissipating. As anticipated, the entire issue is evolving into a squabble between the U.S. and China. Although tensions should ease and an agreement ultimately reached, the issues and concerns are unlikely to go away any time soon and remain a potential downside risk. Regardless of the outcome, when the mid-term elections are behind us next month, investors will have better clarity regarding our political landscape and be able to focus on the prospects for future growth.
2019 Wall Street Expectations
As we head into 2019, the Wall Street community expects the pace of domestic growth to slow, but continue upward. Next year’s quarterly earnings will be compared to the stellar 2018 results, which benefited from the big corporate tax cut passed last December. Fortunately, the U. S. economy is still robust as low unemployment, muted inflation and strength in consumer spending, manufacturing and business spending are producing solid domestic growth. Outside the U.S., the strong U. S. dollar has kept international markets down this year as global markets have consolidated. Although international investments are struggling, we view these markets as attractively valued, offering future opportunity. We believe the recent strength in the dollar will likely pause and ultimately pull back next year.
Pacific Wealth Management’s wealth preservation focus is grounded in our disciplined diversification. This economic expansion will not last forever. We continue watching inflation and the move upward in interest rates closely. The recent volatility over the last couple weeks underscore the importance of proactive risk management. Although your bond investments have not contributed to your overall investment performance this year, they remain in your portfolio to provide ballast when stocks inevitably gyrate. Our decision to further shorten maturities and duration on those bonds in late 2016 has proven productive. Recently, alternative investments in gold have edged up slightly as stocks moved lower.
Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.
- Sir John Templeton
Although, perhaps challenging to see in the recent volatility, we feel the present market is still in the “optimism” stage, which suggests investors likely need to grow more “euphoric” before this bull market is over.
Please feel free to let us know if you have any questions or concerns regarding your investments, financial plan or the news of the day. We are looking forward to speaking with you soon.
James C. Kuntz, CIMA®
Mark C. Hill, CFP®, CDFA™
Co-founder, Wealth Advisor
Justin C. Kuntz, CFP®, CDFA™
Director of Financial Planning