As the 4th quarter of 2018 begins, it feels like all eyes are focused on Washington, DC. If a contentious mid-term election with control of both the US Senate and Congress in the balance isn’t enough to divide our country, the controversy surrounding the confirmation of Brett Kavanagh to the US Supreme Court has captured the attention of a nation. For the media and political junkies, this ongoing struggle for the minds of American voters seems to be a life-or-death battle. For many others, the political environment creates stress that detracts from our personal lives.
Away from the front page headlines, the US economy continues to exhibit strength, which Federal Reserve Bank Chairman Jerome Powell recently summed up as a “remarkably positive set of economic circumstances.” Many economic statistics are at levels not seen since the late 1990’s. Consumer confidence is high due to a healthy job market and record low unemployment rates. Manufacturing and Service industry surveys show strong current activity with positive new orders forecasting continued growth in the near-term future. The interest rate on 10-year US Treasury Bonds has broken sharply above 3% for the first time since 2011, which is another indication that the strength of the US economy may be sustainable.
For investors, 2018 has been a mixed bag. Corporate earnings are up more than 20% over 2017, but US Stocks have posted only modest gains. The rosy economic environment has led to strength in the US Dollar, which has added to losses for US investors in Foreign Stocks. Emerging Market currencies and stock markets have dropped the most, including a bear market in Chinese Stocks. Higher interest rates have hurt total returns for many US Bonds, but those higher rates should boost future returns for Fixed Income investors.
While the US economy has picked up steam in 2018, overall global growth has stagnated. It’s been almost a decade since the last US recession, so we may be “due.” But here’s another recent quote from Fed Chair Powell: “There’s no reason to think this (economic) cycle can’t continue for quite some time, effectively indefinitely.” That sounds like overconfidence, but does suggest a recession is not likely in 2019. As the largest global economy, the US can still be the catalyst to spur global growth higher. If growth picks up in Europe and in some of the larger Emerging Market economies, the prospects for maintaining the recent strong growth in the US may improve.
While the buildup to Election Day and the results may be agonizing, investment markets like certainty and have done well in the 4th quarter of mid-term election years. With a solid economy and moderate investment gains so far in 2018, we should stick with a long-term investment strategy. Despite the political environment, we can all still make progress toward achieving our personal financial goals.
This article was authored by Christopher Borden, a financial advisor located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 508.598.1082 or [email protected]
Disclosure: Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. Investments are subject to risk, including the loss of principal. Because investment return and principal value fluctuate, shares may be worth more or less than their original value. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Talk to your financial advisor before making any investing decisions.
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