ND&S Weekly Commentary 12.24.18 – Selling Pressure Continues

December 31, 2018

Selling pressure in equity markets continued last week as less-dovish-than-expected commentary from the Fed failed to provide the spark investors were hoping. Last week, the DJIA closed down 5.1% while the broader-based S&P 500 closed lower by 7.0%. International equities weathered the week better but were still lower with the EAFE down 2.6% and EM off 1.5%. Bonds were positive for the week as yields moved lower for bonds with longer dated maturities; short-term rates moved higher as the Fed lifted the federal funds rate 25bps as expected. The 10yr US Treasury yield closed the week at 2.79%, down from 2.89% the prior week.

Just as markets become overbought when the fear of missing out sets in (remember January of this year?), the opposite can happen when markets become oversold with negative emotions and panic sets in.  While in the midst of these sharp declines, it can feel like it will never end, history has shown otherwise. There is no shortage of negative headlines to point to: government shutdown, Brexit, slowing growth in China, inverted yield curve (if you can even call it that), peak earning growth, peak GDP growth, and nuttiness in Washington to name a few. We feel the market has discounted quite a bit of negative news into current prices and valuations; we have been patient but are tempted to deploy some of the cash we have built up in client accounts over the 3rd quarter. Money should begin flowing to equities as large institutions begin to rebalance for the year ahead and more buyers are drawn to these compelling prices.

We continue to wish our clients Happy Holidays and New Year.

“Many investors make the mistake of buying high and selling low while the exact opposite is the right strategy.” – John Paulson