Since 2017, increasing concerns over trade and interest rates have taken turns bearing the weight of the market’s attention. The result has been much more frequent and sizable pullbacks. Each time, though, the road back for investors has eventually led to new peaks in stock prices. We believe that the market will grow slowly with earnings; however, the journey ahead will likely continue to be rocky, as we are now late in the cycle.
Many economists and ‘experts’ appear to be resetting expectations for when the U.S. economy might enter a recession. Some seem to believe it could happen this year citing weakening U.S. economic data.
One major concern is consumer spending. Since the U.S. economic expansion began in 2009, retail sales have risen an average of 0.4%. Wall Street was shocked when government data showed that retail sales fell -1.2% month-over-month in December.
Current Market Update on Volatility
There are two main reasons I believe stocks have been hit this week:
1) Uncertainty surrounding U.S./China trade
2) U.S. economic growth worries emanating from a near inverted yield curve
Despite the volatility however, I don’t think these factors are bearish game changers.
The next big market crisis will be caused by….
No one knows for sure, but we do have an opinion on what will not cause the next crisis: toxic subprime loans and over-leveraged banks, whose downfall brought the global financial system to its knees in 2008.
History shows that the causes of ‘the next crisis’ are almost never closely related to the causes of the ‘previous crisis.’ This makes sense as investors and policy makers often respond to a crisis by implementing “guard rails” (laws and rules) and new lines of defense to avoid a repeat catastrophe.