Top of Mind in Markets for 2019
There has been a lot of back-and-forth calls this quarter and last for a global slowdown in 2019 and 2020 – some investment managers have said that a recession is on the horizon. While we think there are many risks to markets in 2019, we are still optimistic. Below are some of the things we will be on the lookout for in 2019. Please feel free to reach out to us if you have any questions regarding your investments of exposure.
TRADE TENSIONS & TARIFFS
Trade Tariffs between the US and China have reached levels of 10-25% in some goods. Recently, the tariffs have affected Apple guidance, automakers, farmers, and more. Many industry groups have opposed the tariffs saying they are affecting the profits of their businesses. Regardless of where you stand on this issue, this is definitely something to watch affecting the economy.
INFLATION
We watch inflation levels as it affects consumer buying power by raising the prices of goods and services. Companies that need to pay more for their costs of goods often see profit margins tighten. One of the repercussions of the Trade War is rising prices have started to creep back into the economy. CPI is restrained right now due to lower gas prices, so we will be keeping an eye on any meaningful changes in the Consumer Price Index for signs of inflation.
INTEREST RATES
There is an ongoing quarterly debate among the Federal Board of Governors and investors around the world about whether interest rates should be raised further or kept the same. Investors will be keeping a close eye on the Fed for the foreseeable future, and Fed moves are an area where all market participants pay attention.
HOME PRICES
Recently, US 30-year mortgage rates hit an 8-year high, and home equity is one of the primary sources for credit. Many home values have been rising for years, and in many markets, home prices have doubled from their lows. Investors will keep an eye for falling home prices as a leading indicator of the health of the US economy.
STRENGTH OF THE DOLLAR
A strong dollar hurts US exports, and the dollar has been rising in value as interest rates have increased. Over the past decade, trillions of dollars have been borrowed, and when the dollar rises, debts become harder to pay, and some companies could default. Investors will be on the lookout for country and company defaults as we progress into 2019.
OIL PRICES & MILITARY CONFLICT
Military conflict between the US, China, North Korea, and Iran presents tension to the economy on many fronts. Many economists believe it would take one major incident to disrupt markets and hurt consumer confidence. Additionally, Venezuela’s political and economic turmoil has caused great concern in the energy markets.
PE RATIOS
PE Ratios are an indication of how “expensive” a stock is relative to its earnings. As stock markets continue to find footing in price and earnings are released into Q2, we will be keeping an eye on PE ratios to determine if we might advise making any portfolio adjustments.
VOLATILITY
After lower than average volatility from 2013-2017, it looks to us like we are back to a period of normal to above average volatility.
CORPORATE CREDIT
To us, it looks like corporate credit is becoming more expensive and we see signs of investment grade credit worsening. As the Fed potentially raises interest rates in the future, it will become more difficult for corporations to pay down their debts and we saw this in General Electric (GE) commercial paper. We will be watching the corporate credit market closely in 2019.
Sources:
90-Day AA Nonfinancial Commercial Paper Interest Rate
GE Downgrade Hits Company in a Debt Market It Once Ruled
MONEY MANAGER FLOW
Institutional money managers move large amounts of money, and it is one of the things we watch closely in financial markets. If a large number of market participants are buying or selling a certain sector or fund, it can be a sign of shifting sentiment. We have found that Whale Wisdom is a great resource for tracking large institutional money flow.
Are there any other major issues on your mind for markets this next year? Want to discuss possible scenarios and strategies involving these possible scenarios? Reach out to us at McClure Wealth, we love talking markets and helping our clients work toward their portfolio goals.