Favorable policy conditions have supported US companies during 2018, including tax cuts, fiscal stimulus, and a lighter regulatory stance. However, economic policy may provide less of a tailwind in 2019 with the boost from corporate tax cuts fading, the likely continuing interest rate hikes by the Federal Reserve, and the cumulative drag from higher tariffs and unsettled trade policy.
Given the size of the tax-law changes and the stimulus boost this year, it was already unlikely that Congress would legislate anything nearly as meaningful for the markets or the economy in 2019. The divided nature of the midterm election results makes significant legislative action even less likely next year.
Overall, it appears that global economic momentum has peaked, and the US economy is facing the onset of late cycle dynamics. While US recession risk remains low and corporate fundamentals solid, the maturing business cycle—in addition to trade and monetary policy risks—could lead to greater market volatility. My biggest concern is the growing US deficit.
Source: Fidelity Investments
However, the third year of a president’s term (the year after the midterm elections) has historically been the best year for U.S. market performance in the four‑year presidential cycle. For the 17 midterm election years in 1950 through 2014, in the year following a midterm election, the market gained an average of 19.9%. The S&P 500 did not decline in any of those years. (source: TRowe Price)
While the outlook for the overall market is positive, there will be winners and losers given the new makeup in Washington.
In summary, economic and financial fundamental factors continue to outweigh politics in our investment outlook. We will continue to monitor these factors and make adjustments to your portfolio as needed to keep you on track to achieve your goals.
Please call us if you have any questions or concerns. Feel free to share this report with anyone you feel would benefit.
Sources: TRowe Price, Fidelity Investments, Norther Trust
Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
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