First of all, RIP President George H.W. Bush, who passed away November 30 at age 94. He was a gentleman, and we may not see another like him in public life for some time. I just finished searching media sites for comments, and I found a remarkable level of respect and appreciation for him, even from sources that clearly opposed his policies. Several of those sources even suggested that perhaps we could use a little more of his decency and civility in today’s politics.
What happened last month? I can’t catch my breath!
The month developed negatively, as the elections, a seemingly hawkish Fed policy and a looming trade war with China dominated the headlines, [i] and equities fell across the board. But just as it seemed we would follow a negative October with a second down month, we got some news. Two things in particular appeared to impact markets and may continue to do so:
- Fed Chairman Jerome Powell made a statement that interest rates were “just below” neutral – implying that there might not be as many rate hikes next year as we expected. They are not seeing signs of inflation yet, despite the strong economy producing so many new jobs. The market had seemed fearful of the Fed being “overly tight” and reacted to these words pretty favorably.
- In the run up to the G-20 summit in Buenos Aires, rumors of a potential deal with China seemed to lessen the trade war fears, and over the weekend there was indeed an announcement of what you might call a truce. [ii]
So how did the markets react at month end?
Equities had their best week since November 2016, and after all that excitement the S&P 500 finished up a little over 2% for the month. Oil also rallied, and the ten-year treasury note yield slipped to just below 3% to end the month, a significant reversal from earlier in November when it was above 3.2%. [iii]
As we write this Monday morning, it appears that the markets around the globe liked the G-20 ceasefire announcement, as equities rose virtually everywhere to start the new month.
We are now in the final month of 2018, the year in which volatility returned with a vengeance and the roller coaster has taken us for an exciting ride in both directions, with little net change to show for it. But there is a month left, and it will determine what we remember about 2018 – was it a good year after all? A bad year? One of those small change years that people quickly forget?
We will know all that soon enough, but in the long run it really doesn’t matter. There really is nothing special about the calendar year for a long-term investor; it is just an accounting convention, a standard period for which to generate data. Nothing changes January 2 when markets open for the new year. We didn’t “cash out” and don’t anticipate making any abrupt changes–it will just be another day in a series of many thousands of days as we accept risk in exchange for expected long-term returns.
Best wishes from all of us for the Holiday Season!
Roger C. Hewins, III
[i] The Wall Street Journal. (2018). Georgi Kantchev, Akane Otani and Mike Bird. [online] Available at: https://www.wsj.com/articles/asian-stocks-rise-as-u-s-and-china-reach-a-trade-truce-1543794233 [Accessed 3 Dec. 2018].
[ii] CNBC. (2018). Thomas Franck. [online] Available at: https://www.cnbc.com/2018/11/30/bond-market-fed-minutes-g-20-summit-and-us-china-trade-in-focus.html?&qsearchterm=fed%20statement [Accessed 3 Dec. 2018].
[iii] Source: Morningstar Direct
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