Crazy MarketSubmitted by Destination Wealth Management on December 20th, 2018
Moments like these are scary. When you read the headlines and listen to the news, there is no shortage of voices saying that the end is near and that cataclysmic disaster looms. I understand that. From time to time, I’m in the media as well and I do my best to try to calm nerves, but it still can be unsettling seeing this type of volatility.
I know the ideal content of this week’s update is my iron clad prediction of what will happen in the future. I can assure you we are trying our best to decipher conditions, but our assessment and conclusions have their limitations. The truth is, no one necessarily knows what will happen in the future.
Still, I am asked for my assessment of current conditions and whether one should be panicking or afraid. I think the reality is that anxiety can’t be avoided; we’re talking about portfolios here that reflect your long-term security and the uncertainty is difficult.
I believe that the likelihood of the United States falling into recession is still less than 50%. The comments made by the Federal Reserve today suggest they see a stronger economy and strong job growth. Today’s increase in interest rates was accompanied by a declaration that the likelihood of four increases next year has reduced.
We continue to believe the trade issues will be resolved, particularly if market volatility continues. It’s in the best interest of both the United States and China to settle this issue quickly. Market volatility will most likely light a fire under the negotiations.
We still believe the economy is on reasonable footing. I’m sure you’ll be reading headlines in the near future suggesting that is not the case. But the evidence that we have in front of us now is that, on an economic basis, the United States is in reasonable shape.
Portfolios have been allocated on the assumption that volatility is a permanent given condition. Our assumption is interest rates will likely increase. We believe emerging markets will continue to be a challenging investment area. Commodities will likely continue to be under pressure. Dividends will help to mitigate risk. Oil prices will likely still be subject to oversupply. Volatility will continue to remain high.
We’ve invested based on these assumptions. We are doing our best in a very trying environment and want you to know that we take this responsibility very seriously and care greatly about your long-term success.
How far it will go is anyone’s guess and anyone who says they know is simply attempting to state the unknowable.
We believe the best course of action is to make sure your portfolio is allocated in a way that we think makes sense given your long-term financial planning goals. No one can position portfolios for very short-term market movements as it is simply speculation (though some will claim they have the ability to do so).
Portfolios can be adjusted at any time based on one’s goals and comfort level. Portfolios can be liquidated to cash or made very aggressive, all dependent on your outlook and comfort level. We are focused on making sure, on a long-term basis, that we have done our best to construct a portfolio strategy that focuses on your long-term objectives. We won’t get everything right, but our allocation decisions are centered on trying to position strategies based on what we think conditions dictate.
We are happy to answer any questions you might have, particularly when the headlines get unnerving. Please reach out to us and let us know what you think or feel regarding today’s conditions. We are here and want to hear what you think.
Here’s a quick summary of what the Federal Reserve said today as well as their general outlook for the future.
December 19 Washington Post article by Heather Long: