After reaching all-time highs earlier this year, the nearly decade-long bull market has been transforming itself throughout the fourth quarter. As of this writing in late December, the Dow and S&P 500, which are both in corrections, are on track for their worst December performance since the Great Depression in 1931, down more than 10 percent each this month. The S&P 500 is now in the red for 2018 by 7.7 percent.

All this has investors stressed and attitude about the market’s near-term future is souring. The first nine months of 2018 gave the impression that the US economy was in good shape and improving.  Unemployment numbers were down and industrial production was going strong.

While some risks appear to be receding, others are surging, wreaking havoc on asset prices and investor sentiment. It’s reminiscent of the story of the Dutch boy trying to plug holes in the dike. US-China trade talks and Fed speak have improved, but just as one leak is stopped, something else breaks loose. Calm water isn’t the state of the market right now.

News Headlines & Challenges leading the instability spectacle …

1. Fears of slowing global growth & trade conflicts
2. Turmoil between EU and Britain
3. Corporate bond defaults
4. Washington, DC fractious quarrels

Certainly, one of the biggest headlines for the last few months has been the dialogue between the President’s administration and China.  There was some growth prior to the imposition of tariffs, but currently the trade tensions are a drag on economic growth overseas.

The arrest of the Chief Financial Officer for Huawei Technologies, also adds a political element to the friction between US and China. The claims of sanction violations will be worked out in Canadian and US courts, but there is much in this story that adds to the market’s unease.

It was reported in mid-December that key financial indicators in Europe fell to their lowest level in more than four years.  This was due to weak industrial production in Germany and anti-government protests in France with many landmarks and personal property attacked.  Other European economies suffer, with Italy pronounced on the verge of a recession.

More uncertainty abounds with the clash of London and Brussels, also called the UK and EU “Brexit” struggle. The vote which took place back in 2016 started the process which may or may not come to a conclusion in early 2019.  More votes are ahead in the UK, so the market strains to price in the final unknown outcome.

In the US, many corporations report solid earnings.  Many of the better capitalized businesses have stable Investment Grade bonds.  The problem is with other corporations which have taken on significant debt during the period of low interest rates.  Falling credit ratings will negatively impact these companies’ profits.  Investors will want to consider carefully the credit quality of their bond holdings.

At this moment, a government shut-down is on-going.  These standoffs are exhausting and an indication of the divisiveness likely to be present for another couple years.  Investors will certainly remain disturbed (or maybe a stronger invective is called for here) over the coming months.  The market may reflect this discord through lower stock prices.

Among most all asset classes, it will be a volatile 2019.  There may be bright spots, but I am certainly concerned how the market will get along given the headwinds we are all feeling.

Welcome to the New Year!

Representatives Cambridge Investment Research, Inc. do not provide tax or legal advice in their roles as registered representatives. These are the opinions of Representative and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.