Q4 Recap and 2019 Outlook

That Sure Felt like a BEAR!

When I first entered this business back in 1996, one of the first bits of wisdom I was given to prepare clients (and yourself) for a 20% correction about every 3 to 4 years.  It just happens! Throughout my career this has worked out to be pretty accurate.  WELL…..we just got a taste of one of these instances.

From September 20th through December 24th, the markets declined 19.8%. Before the rally in the last few days of the year, December of 2018 was the third worst month ever for the equity markets.  “Technically” this did not hit the definition of a “Bear Market” but it sure felt like one.

What happened?

Sometimes stocks just go down.  No one can really give an answer but certainly the uncertainty in Washington DC, trade disputes and questions around slowing growth are likely part of the cause.

FOCUS on FUNDAMENTALS

Despite the drop in investor confidence, our team believes the fundamental backdrop for continued earnings growth and positive GDP growth remain solid, suggesting we will not see recession and this is a market correction not based on recession.   The consensus earnings growth for the market (S&P 500) is around 6-7%.  The U.S. economy has never experienced a full recession while earnings were growing. (Chief Investment Strategist of LPL Financial research)

Bottom line:

When we look at the landscape and study the earnings outlook for the markets, we believe the odds of recession are low in 2019.  We believe earnings will be growing again this year, albeit, at a slower pace when compared to 2018.  Lastly, with the decline in the markets, the overall valuation of the markets appear favorable when based on history.  The “forward PE Ratio” (Price/Earnings) is at a 5 year low suggesting stocks have better value today than over the past 5 years.  We encourage investors to remain focused on the positive fundamentals supporting growth in the US economy and corporate profits and make no radical departures from your long-term strategy.

Happy New Year to everyone!!!!