We hope everyone had a safe and happy holiday season.  As you are aware, it has been a tumultuous 3 months in the equities markets.  Stocks have risen rapidly to begin 2019.  The S&P 500 Index’s first 13 days of trading was the best start in the last 30 years.  Of course, this follows the most dramatic December downturn since 1931.

Economic conditions and cycle analysis give us good reason to be positive about equity markets in 2019.

First, economic data points to strong growth in the equity market in 2019.  Currently there is no indication that the US will go into a recession this year, due to the following:

  • The Federal Reserve has moderated its stance on future rate increases
  • The economy is at full employment— unemployment rate below 4%
  • S&P 500 Index, the Dow Industrials, and Nasdaq have bounced off of the December lows
  • Wages are up
  • Inflation is moderate — CPI +1.9% for 12 months ended December 2018
  • Mortgage loan rates are the lowest in 9 months
  • US/China are in serious trade talks

Second, cycle analysis reveals positive expectations for a strong 2019, as well.  The chart below shows the 11 historical declines of 8% or more in the S&P 500 Index since 1990, based on monthly data.  We think that the current downturn is most closely related to the 4 Fed tightening cycles, which are shaded in blue.  As stated above, there is no indication of a US recession, which are the 3 periods shaded in pink.  The unshaded declines each had individual specific causes that do not apply to the current investing environment.

The important statistics for you to focus on are the average months from peak to trough, and from trough to former peak during Fed tightening cycles.  The average peak to trough of these cycles is 4 months.  This time period mirrors the current cycle, from the peak of 9/28/18 to the trough of 12/24/18.  Historically, the Fed tightening cycles have averaged 5 months to regain the former peak from the trough.

Volatility in the marketplace is nerve wrecking, and unfortunately, inevitable.  As a matter of fact, we could retest the December 24th low.  As the chart clearly shows periods of rapid declines and rebounds are common.  Since Haven Wealth Group is bullish on domestic markets, we will continuously monitor economic conditions for growth opportunities.

From all of us at Haven Wealth Group thank you for your support! We wish you all a Happy, Healthy, and Prosperous New year!

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