A rough week for equities.

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  • Via Nova’s perspective on the rough week for stocks.

  • S&P 500 suffers its worst week in eight years.

  • FOMC not as dovish as hoped.

  • Another government shutdown.

  • The Week Ahead: Via Nova wishes all a happy, blessed and safe holiday!

Via Nova’s perspective on the rough week for stocks.

Via Nova believes the recent decline in equity prices reflects more fear and frustration than reality.  Most analysts and forecasters expect continued growth in the economy and corporate profits in 2019, which typically supports higher stock prices.  However, investors have constructed a “wall of worry,” as they often do, based on concerns related to politics, Fed policy, trade tensions and geopolitical risks.  While these risks exist, the realities are usually more favorable than feared.  Consequently, the latest market decline has made equity valuations increasingly attractive and could represent an emerging opportunity.  Some investors see market weakness and instinctively sell at inopportune times.  Such tactics are often counterproductive.  While we can trust our instincts in many instances, human instincts were designed to deal with lions and tigers, not bulls and bears.  Disciplined investors have a greater likelihood of achieving their long-term investment goals.

S&P 500 suffers its worst week in eight years.

The 7% decline in the S&P 500 was the worst weekly loss since August 2011 and left the index down -18% from the September high - almost in bear market territory.  Anxiety ruled the market which saw a spike in volatility measures and a surge in trade volume.  Consumer discretionary stocks led the decline, but all eleven sectors fell for the week, reflecting the emotional and reactive nature of the selling.  Small cap stocks fell a bit more than the S&P 500, but international and emerging market stocks experienced smaller declines.  Year to date, however, the decline in international stocks has been double the S&P 500. 

In other markets, the fear and negativity in the stock market gave a moderate boost to the bond market. The Bloomberg/Barclays Aggregate Bond Index finished higher and is roughly flat year to date.  Oil prices plunged below $50/barrel to $45/barrel, and gasoline prices fell.  Prices below $50 could potentially prompt oil production cuts and layoffs, as it did in 2016.  Inflation hedges, such as gold and Treasury Inflation-Protected Securities (TIPS) gained, while real estate and the value of the dollar fell.  A weaker dollar raises import prices but makes U.S. goods more competitive in the world markets.

FOMC not as dovish as hoped.

Via Nova expected the Federal Open Market Committee (FOMC) to raise short term interest rates by a ¼%, and they did.  The FOMC also tempered their outlook for additional rates hikes in the coming year, a more dovish assessment, also as expected.  However, the comments from Chair Jay Powell in the post-meeting press conference were not as soothing as the market wanted.  Powell was asked about the implications of the global stock market declines, and he responded that equity prices are but one input used by the FOMC in setting policy.  Stock prices fell steadily and sharply during the press conference.  The FOMC now thinks they will need to raise interest rates only twice more (½%) in in the coming year, but they will continue to monitor economic developments domestically and globally in making they decisions. 

Another government shutdown.

Funding for border security was the sticking point for Presidential approval of a short-term budget funding package, and the government technically shut down on Saturday.  Senators left town and will take up negotiations after Christmas.  Sadly, this tactic has become a common occurrence.  Via Nova is not worried about government bond defaults or funding for key needs such as defense or entitlements, but the “shutdown” is symptomatic of a Congress that is more focused on political advantage than the progress that comes with consensus.

The Week Ahead: Via Nova wishes all a happy, blessed and safe holiday!

The markets will close early on Monday and be closed on Christmas.  Trading volume is expected to be light.

Via Nova wishes everyone a happy, blessed and safe holiday! We hope these wishes find you surrounded by family and friends this holiday season.Via Nova will offer our thoughts and expectations for the markets in 2019 in our final 2018 message.