ND&S Weekly Commentary 12.31.18 – Auld Lang Syne

December 31, 2018

It was an unprecedented volatile week on Wall Street heading into 2019. While retailers were experiencing the biggest holiday sales increases in six years, investors were rattled by tumultuous trading in equity markets.

For the week, the DJIA advanced 2.8%, while the broader-based S&P 500 finished at 2.9%. The tech-heavy NASDAQ surged 4.0% and international markets were slightly weaker with the MSCI EAFE and MSCI EM up 0.5% and 0.8%, respectively. The 10yr US Treasury yield declined to 2.72% down from the previous week’s 2.79%. Investors sought safety in Treasuries as the risk-off scenario continued.

The National Association of Realtors reported that pending home sales fell 0.7% in November after declining 2.6% in October. Homebuilders and suppliers have been hit hard. Recently, mortgage rates have declined slightly which should help the housing market. US crude prices closed the week at $45.51 a barrel and have slid 11.2% for the month of December.

The partial government shutdown started a week ago Saturday closing down funding for nine cabinet-level departments and several agencies. President Trump, again at odds with Democrats, is holding the line on his demand for the border wall to be built.

The market’s decline that began in October has erased all of its 2018 gains. Several headwinds including the China and US trade conflict, the Federal Reserve tightening of monetary policy and the partial government shutdown have weighed heavily on investor minds. We expect market volatility to continue, hopefully, with less oscillation. The market needs reassurances that interest rates will remain somewhat steady, the US-China trade conflicts will de-escalate and that the government shutdown will end. While these issues are being resolved, we take solace in the strength of our economy and more than reasonable earnings expectations for 2019. The major banks begin reporting on January 18th.

Please try to avoid the media’s melodramatic coverage of financial and political instability and stay the course.

Happy New Year!

“And there’s a hand, my trusty fere!
And gie’s a hand o’ thine!
And we’ll tak a right gude-willie waught,
For auld lang syne.”
Robert Burns