The Halloween Trick
The market has given many of us quite a scare in October before
finally rebounding a bit the last two days of October and November is
off to a positive start as we write this. There is much to do about
rising rates, tariffs, and elections over the past few weeks and we
would like to address this briefly. If you can’t wait until the end,
the bottom line is we are likely to move higher into 2019.
Some are speculating the Fed has raised rates too far and we happen to
be in this camp to some extent. However, the last release of GDP says
it is likely close to 3.5%. In the environment in which we currently
live, it seems that if the 10-year Treasury has been consistent with
an average of GDP over the last year (Gross Domestic Product Growth),
then it is probably fairly priced. Since 1967, we have seen periods of
higher GDP growth and a higher 10-year Treasury. Think late 70’s and
early 80’s. Clearly GDP has slowed down over the years with a few
spikes higher and lower.
For now, we expect rates will continue to move higher throughout 2019,
and it appears they still have room to run without upsetting the
markets as the 10-year Treasury notes are less than GDP.
Tariffs – Tariffs have been the headline choice of the day for
the last 6-9 months. Some countries’ tariffs we were able to resolve,
but China’s tariffs still loom over the headlines. Frankly, these
could cause a problem should they last indefinitely. However, if you
look at the tariffs, they are down in 2018 vs. 2017. This means the
rhetoric does not match what China is saying. All leaders of their
countries try to save face with their voters (or in China’s case,
population). They talk tough, but cave under the pressure of their own
fears. This will be no different. Neither the United States nor China
can let tariffs create a recession or they will lose their power given
by the people. SIMPLE.
Elections – They are here and soon will be over. Democrats will
not have veto power and not much will change. Trump will work with
whomever is in power on either side. Frankly, maybe nothing will get
done and sometimes that can be a positive. There is not going to be a
huge swing to either side and unless one party holds all the cards, it
is a lot to do about nothing.
Stay focused on the long-term. Even if you may be contemplating
retirement, you would not expect to pull out your savings from
investments on the day you retire. Retirement is a long journey and
you will need the assets to continue their growth. We are currently
evaluating the income investments within our portfolios as the
interest rate environment has changed with the trend towards higher
rates. We will keep you updated should something in the markets
warrant a change. For now, we see the markets moving higher as we
enter the next six months, which have historically been the best time
to be in the market.
The Newton Wealth Management Team.