In my last letter, I said we would be contacting you for arranging account reviews. Obviously, equity market volatility has occurred since then and it has made the appointment making process challenging. I have good news though. I am embracing a new appointment making technology that will enable clients to go to a link online and my actual Outlook Calendar will pop up and you will be able to pick your appointment time yourself – wow! The world keeps changing! This will be especially helpful as less and less people answer their phones and this new process will take that effort out of the loop. You will receive a letter from me along with an email requesting you go to the link and pick your appointment time. These letters will start arriving soon.
Ok, the first question clients ask me regarding volatility is “why”? There is a simple answer and there is a more complex one. The simple answer is equity market volatility is the admission price we pay for the higher returns that equities generate over time over most other liquid asset classes. The more complex answer is that concerns over the US/China trade talks, the Federal Reserve’s interest rate policies and sharply lower oil prices have brought into question slowing global growth and the potential of a recession looming in our future.
LPL Research believes that trade progress has been made, but that it continues to be the biggest headwind for stocks. Against that backdrop, it is understandable that stocks threw a tantrum after U.S. trade officials walked back part of the apparently overly optimistic initial recount of the Trump/Xi meeting at the G20 Summit.
LPL believes that fears of a policy mistake by the Fed has also caused recent market weakness. The Fed has been a cause of past recessions and could be again. LPL thinks that Fed Chair Jay Powell’s speech on November 28 provided evidence of more flexibility from the Fed, although this morning they raised interest rates 25 basis points to a new band of 2.25% – 2.50% and indicated a possible 2 additional raises next year instead of 3. Generally, the stock market doesn’t like rising interest rates and is showing its dislike by responding with weakness.
Lastly, sharply lower oil prices are being cited by some as a sign of an impending economic slowdown. LPL says oil’s weakness has been driven mostly by supply issues, including Iran sanctions, record levels of U.S. production, and elevated domestic inventories. LPL thinks OPEC’s decision to cut 1.2 million barrels of production at its December 6-7 meeting is a positive step toward resolving oil’s supply problem and can help stabilize prices.
Volatility shakes weak hands out of the markets. LPL believes that U.S. stock market fundamentals remain generally favorable, but they realize that lower prices in equities can shake many people’s confidence. Having the right asset allocation right now is helpful and this current volatility must be ridden through even though it can be uncomfortable. Please contact me or Rose with any concerns or questions. – Mark
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Economic forecasts may not develop as predicted. Some of this research material has been prepared by LPL Financial. All indices are unmanaged and may not be invested into directly. Referenced material: LPL Research Weekly Market Commentary dated December 10, 2018.