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4TH QUARTER NEWS

This time last year we were sleeping like babies. The market had ended a banner year in 2017 and was starting 2018 strongly.  In contrast, we are now waking up every hour. The market gyrated markedly in 2108 and the fourth quarter was among the most dismal in modern stock market history. Looking ahead to 2019, we are quite uncertain about how events will unfold. We are in anxious times – and that peaceful sleep eludes us.This time last year we were sleeping like babies. The market had ended a banner year in 2017 and was starting 2018 strongly.  In contrast, we are now waking up every hour. The market gyrated markedly in 2108 and the fourth quarter was among the most dismal in modern stock market history. Looking ahead to 2019, we are quite uncertain about how events will unfold. We are in anxious times – and that peaceful sleep eludes us.

That said, we are encouraged by positive signs. The U.S. economy is slowing – but will still see healthy growth in in 2019. We recognize that recession is inevitable in some future year. But we think it unlikely to happen in 2019. (See article on page 3 regarding the history of recessionary impacts on the stock market.) The recent decline in stock prices has brought equity valuation more in line with historical averages. Unlike 2008, there are few signs of structural risk in the financial system.

From the negative, the market faces what many analysts call “strong headwinds.” The policy of the Federal Reserve and other central banks is less accommodative. Trade tensions with China could be prolonged. The economic impact is unpredictable. Corporate earnings will slow considerably in most sectors. Politics in Washington will be conflicted and gridlocked. The federal deficit is expanding at alarming rates. 

On balance, we expect the markets to be turbulent in 2019. But we think it can muddle through to be a year of modest gains. We will be talking with each of our clients about objectives and risk tolerance. We expect to advise many clients to reduce their equity exposure and to prepare for volatile periods. At the same time – as always – we will be looking for stocks with future growth potential.


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