Markets, Economy

Weekly Kickstart (12/24/2018-12/28/2018)

12/24/18 8:00 AM

iStock-626627280.jpgStocks continued lower last week, as the S&P 500 declined by 7.05 percent to 2,416.62. That left the benchmark index down 9.61 percent 2018-to-date, and 17.54 percent below the all-time high hit just a few months ago. Although the uncertainty surrounding the trade war and looming government shutdown continued to weigh on equities last week, the biggest headwind for stocks was the Federal Reserve failing to deliver the “Santa Pause Rally” investors were hoping for. Indeed, with a combination of some softer-than-expected economic data and elevated market volatility, many traders believed that monetary policymakers could justify keeping rates unchanged in December, or at the very least slash forecasts for future hikes. Sixty-one percent of retail investors surveyed this month by Wells Fargo even said that they believe the Fed should stop raising rates altogether, up from 46 percent in May. The Federal Open Market Committee (FOMC), though, apparently had other plans because on Wednesday it raised the target range for the federal funds rate to 2.25-2.50 percent, the 9th hike since the central bank started gradually tightening in 2015.

y783y54785

The committee also updated its quarterly economic projections, with highlights being a downgraded forecast for 2018 and 2019 real gross domestic product (GDP) growth, as well as a slightly lowered inflation outlook. Moreover, the Fed’s “dot plot” was revised to show that officials now expect two more quarter-point rate increases in 2019, down from three in September, and there were a few hints that the committee will become increasingly data dependent. Altogether, the latest announcement reiterated the FOMC’s confidence in the U.S. economy but simultaneously acknowledged that officials may have to move quickly to adjust monetary policy in case their optimism turns out to be misguided. This is quite the dovish shift compared to the past few FOMC meetings, but clearly not dovish enough based on last week’s knee-jerk selloff. Since the wild fluctuations in stock prices may not be going away any time soon as markets continue to digest the latest policy announcement and constant influx of other headlines (risks), regular investors should remain focused more on their long-term goal of amassing a large retirement nest egg. Assistance is available through the consistent use of tax-advantaged savings vehicles, dollar-cost averaging, and regularly consulting with a professional financial advisor. As always, we are here to help with any questions you may have.

543yy34545

To recap a few of the things we learned about the economy last week, the positives included that the 30-year mortgage rate declined, housing starts rebounded, building authorizations rose, existing home sales increased, consumer confidence firmed, and the number of Americans making first-time claims for unemployment benefits held near a half-century low. As for the negatives, the nation’s current account deficit widened, mortgage applications declined, homebuilder optimism deteriorated, regional manufacturing activity continued to cool, durable goods orders disappointed forecasts, business investment moderated, U.S. GDP growth during the third quarter of 2018 was revised lower, and the annual rates of growth in Americans’ income and consumption decreased. This holiday-shortened week the pace of economic data slows down considerably but there are still a few important reports on housing, manufacturing, and employment scheduled to be released.

45y3y35445

**A more detailed snapshot of the U.S. economy can be found here.**

What To Watch:

Monday

Tuesday

  • Christmas
  • All markets closed

Wednesday

Thursday

Friday

  


 

Sources: Econoday, FRBG, Wells Fargo, Bloomberg, FRBSL

Post author: Charles Couch

Disclosures