Our January 2019 Market Commentary: “Mixed Messages”

While 2018 started out on a good note for the stock market in January, Santa brought a lump of coal for Christmas. December 2018 officially went down as the worst December for the US Stock market since 1931. As you can see below, most categories were negative for investors in 2018.

Source: Morningstar Direct

Mixed Messages

As is usually the case, when things are not going well for the markets there is no shortage of finger pointing or blame to go around (whether deserved or not). One primary target of this blame more recently has been the Federal Reserve, as they continue on their path of increasing interest rates to more normal levels.

Investors would be justified in thinking there appears to be some major mixed messaging regarding the economy. On the one hand, the President is constantly emphasizing how the economy “is stronger than ever”, yet at the same time arguing that the Federal Reserve is raising rates too much for the economy to handle. This is while the Federal Funds rate is not even at half the pre-crisis level of 2007.

In addition, an executive order was issued to freeze federal worker pay increases for 2019, an authority granted only for “national emergency or serious economic conditions affecting the general welfare”. The last time such pay freezes were implemented was in 2011-2013, in the aftermath of the financial crisis. Not exactly a measure someone would expect to be implemented in a strong economy.

Apparently, we are living in upside down times when contradictory situations can exist at the same time. Either that, or more likely, one of the two beliefs are untrue. Either the economy is more fragile than many claim, or the economy is strong and can support more normal rates.