Weekly Market Commentary

Market Recap Week ending 12/21/2018

-Darren Leavitt, CFA

Last week Wall Street posted its worst weekly performance in a decade.  The Fed’s decision to raise the federal-funds target range by 25 basis points to 2.25%-2.5%, along with political discord in Washington sent indices to their lowest levels of the year.  The S&P 500 lost -7.05%, the Dow surrendered -6.87%, the NASDAQ lost -8.36%, and the Russell 2000 fell -8.41%.  International developed and emerging markets lost too but performed slightly better for the week losing -4.80 and -3.29%, respectively.  Investors continued to seek refuge in Treasuries which in turn flattened the 2-10 yield curve at one point to a mere 11 basis points.  At week end, the 2-year yield closed at 2.63%, and the 10-year yield was 2.79%.  Crude oil continued its decline with February futures falling to $45.70 a barrel on Friday.  The US benchmark for Crude-Oil prices is off over 41% from its October highs.

Concerns regarding economic growth were intensified as financial conditions appear to be tightening and monetary policy assessed as too restrictive.   On Wednesday, the Federal Reserve increased rates by 25 basis points and suggested they were poised to raise rates two more times in 2019.  Going into the meeting, the probability of a hike was just north of 70%. However, the expectation had come down from ~95% in just the last couple of weeks. The outlook for rate hikes going forward was more dovish than the Fed’s prior expectations but perhaps not dovish enough for investors.   The Dot Plot which lays out the aggregate rate expectations of all the Fed governors was reduced from 3 to 2 in 2019.  Concerns regarding the reduction of the balance sheet or quantitative tightening seemed to catalyze the sell-off on Wednesday afternoon.  The policy to unwind the balance sheet has been in place for some time now and has been running on “Autopilot.”  When asked about whether or not the Fed would pause on the reduction of the balance sheet, Powell seemed dismissive to the notion.  On Friday, New York Fed President, John Williams, tried to tone done this stance by indicating that the Fed is listening to the market and is not inflexible with regard to the path of the balance sheets runoff.

Politics offered more concerns for investors last week.   The threat of a partial government shutdown over the funding of a border wall and the abrupt resignation of Defense Secretary, James Mattis, gave more reason for investors to pause.

Technically the market has appeared to be oversold, but any bounce has been met with more selling pressure.  The market breached its February lows which most likely activated stop orders which led to more selling.  Cyclical sectors have been hardest hit.  Fed Ex and Micron were two notable companies that reported earnings last week that offered more concerns on the global economy’s growth outlook.  Alternatively, Nike reported much better than expected results which perhaps paints a better picture regarding the state of the consumer.

There were no changes to our models last week.  Our Tactical models have been playing defense for quite some time and have benefited from outsized positions in US and international treasuries/bonds.  I am sure that many of you will be getting calls from clients regarding the markets most recent activity, we are here to help with any questions you might have.  Happy holidays, we wish you and yours the very best for 2019!

The information in this Market Commentary is for general informational and educational purposes only. Unless otherwise stated, all information and opinion contained in these materials were produced by Foundations Investment Advisers, LLC (“FIA”) and other publicly available sources believed to be accurate and reliable.  No representations are made by FIA or its affiliates as to the informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. No party, including but not limited to, FIA and its affiliates, assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

The views and opinions expressed are those of the authors do not necessarily reflect the official policy or position of FIA or its affiliates.  Information presented is believed to be current, but may change at any time and without notice.  It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

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