2018 has been one of the most volatile years for markets in recent memory, most of which came in the final quarter. There are three main items weighing on markets right now. One, trade talks with China. We are hearing of consistently positive, albeit slow moving, talks between US and Chinese diplomats on this matter. Until we get any kind of concrete data on this, uncertainty will reign.
Second, the Federal Reserve. Short term rates have risen while long term rates have stayed mostly flat. The Fed followed through with their rate hikes in 2019. If rates move too high too fast, this could hinder economic growth and ultimately lead to a recession.
Third, the government has shutdown, partially. History suggests this will not have major implications in the stock . market, but the political environment we are in has been, to use market terminology, volatile, and that creates an uneasy feeling among investors. Of the three, trade will likely have the biggest impact in the near future.
For 2019, US economic data is still strong and do not point to recession in the near term. The recent action in markets, in our opinion, is a matter of pricing in the aforementioned items. As we move into the new year, we will continue to digest these unresolved items and act accordingly.