It seems the burning question in the minds of all investors is whether we will have a Blue Christmas or a White Christmas. Will the fire be so delightful or is it just cold outside baby?
As hopes for a Santa rally fade and the market faces the worst December since the Great Depression, investors are left with much to consider. Right now, the only thing that is certain, is uncertainty. Unlike Hanukkah, the market hasn’t limited itself to eight crazy nights. As I write this, President Trump and Congress are fighting one another in attempts to gain the upper hand and fund our government past Friday. Beyond that, we are facing the prospects of slowing global growth, rising interest rates and of course trade tensions with China. If you add all of this to an aging economic expansion, it’s easy to see why the markets are turning to a lump of coal.
We really have no idea what will happen in the final week of the year, but that really doesn’t matter too much at this point. The greater question is whether this is the end of the economic expansion we’ve been enjoying since 2009. We do not think the party is over just yet. Sure, the bowl of eggnog is getting low, but there are enough good things happening that should keep us merry for a while longer.
We are still seeing positive economic fundamentals and the risk of a recession remains low. As the chart above shows, bear markets outside of recessions are rare. Yes, the US economy will cool down in 2019, but we do not expect it to freeze over. Corporate profits remain robust, US households are better off than ever before, unemployment is at historic lows and interest rates remain low. We believe that this is a temporary market correction, which while scary should reverse in due time and ultimately allow the aging bull to go on a bit longer. This is entirely normal during this stage of the economic expansion.
Whether we are blue with Elvis or cheery with Bing is yet to be determined, but it is fair to say, unlike Eartha Kitt we won’t be expecting Santa Baby to cram sables, convertibles, and yachts down our chimney this year.
Best wishes for very Happy Holidays and a wonderful and prosperous New Year!
Your Team at EBW