Trick or Treat
October 31, 2018
October brings fall festivals, Halloween, and my personal favorite – trick or treating!
For financial professionals, it also ushers in the 4th quarter, providing a wealth of data and potential insight into the economy, corporate earnings and where the markets may be headed in 2019. Will we be tricked into a false sense of security or possibly receive a treat for being patient investors? Here are some key data points to keep an eye on as we move ahead:
- GDP/Unemployment – The first release of Q3 GDP was +3.5%. This follows a strong 2nd quarter increase of 4.2% and shows the growth of the economy has been strong for 2018. With record low unemployment, the Federal Reserve will likely continue raising interest rates which has been a key driver of market volatility and downside over the past few weeks.
- Mid-Term Elections – The uncertainty will likely keep markets in limbo until November 6th. Polls are forecasting the makeup of the Senate will probably not change, but in the House, there are key races that could shift the balance of power. The markets prefer gridlock in Washington, so the outcome will probably mean business as usual.
- Federal Reserve – The last meeting of 2018 for the Fed will be mid-December. The markets have been factoring in a rate hike at this meeting, but it is likely dependent on GDP, inflation and wage data. The Fed has been transparent thus far under Chairman Powell in their stance of monitoring the data, so this rate hike is subject to continued growth in the economy and positive forward-looking data.
When considering your own strategy, try not to hedge your bets on any one specific event, as you would need to be right on two fronts. The first is to predict the event and the second is the impact it will have on your investments. We advise our clients to rebalance, diversify, and reduce some of the riskier assets if need be. However, this current drop in equity markets is likely to add another buying opportunity if you are a long-term investor. Be patient, stay disciplined in your strategy and try not to get caught up in the emotional “crisis” of the day because the media will always create one if needed. In the end, we all want to avoid the trick and be rewarded with the treat!