Starting 2019 with a Bang
While last Monday may have marked the last gasp of 2018, the volatility which dominated the fourth quarter has continued into 2019. Admittedly, investors were likely expecting the equity markets to continue to exhibit sharp movements, especially in response to significant news, but last week brought about a confluence of events which demanded attention. First, Apple negatively preannounced, lowering its revenue guidance to approximately $84 billion, below prior guidance of $89-93 billion. While lowered guidance was largely expected, the magnitude of the decrease was greater than expected, and with company management citing China as a large contributor, equity investors reacted violently, viewing this as an indication that a global recession was close at hand. Also concerning for investors, the ISM Manufacturing survey dropped sharply from November to December, falling to 54.1 on declines in new orders, production, and employment. While this print still indicates economic expansion, it is pointing to a lower level of growth than we enjoyed in 2018.
Just as investors were attempting to digest these signs of a global slowdown, the U.S. non-farm payrolls report for December was released, and it was incredibly strong. The U.S. economy added 312,000 jobs in the month of December, the unemployment rate closed the quarter at 3.7%, and wage growth grew 3.2% year-over-year – its highest point since 2009. Of course, with much pressure being applied to the Fed over the last several weeks to slow the pace of interest rate hikes given the recent market volatility and mixed economic data, the jobs report could have been yet another data point to support the Fed’s current path. Instead, Fed Chairman Powell used a roundtable discussion as an opportunity to indicate that the Fed will be “patient”, and seemed to refute that there is a preset plan, but rather that the Fed would be reactive to the economy.
So what’s next? With Fed fears clearly back to a simmer, the major focus for this week is the ongoing trade situation with China. Economic data coming out of China has been soft, and the People’s Bank of China announced a decrease in reserve ratios on Friday to infuse liquidity into the system. As a result, the trade discussions happening between the U.S. and China this week in Beijing may bring some resolution. In addition, the minutes from the last Fed meeting will be released on Wednesday, which should provide context for some of the comments out of the Fed over the last several weeks. Finally, Brexit discussions in the U.K. Parliament are set to continue this week, and the political fallout of the upcoming vote bears watching for investors. With that said, we believe these events represent both risk and opportunity, and as such, we will continue to monitor these events carefully. We encourage you to reach out to your Wealth Advisor at Boston Private Wealth to discuss any questions you may have.