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Market Commentary

Stocks post November gains with late rally; Wall Street looks for Santa Claus

December 2018

After a rough October and the dust settled from the Mid-Term Elections, ending with a split Congress, an otherwise volatile November ended with a strong and broad-based rally the last week to finish with gains for the month.

While the Fed held interest rates steady at its early November meeting and reiterated strong economic growth, Fed Chair Powell's speech November 28th at the Economic Club in NY sparked the rally as he said that Fed policy rates were now "just below" its neutral target (neither stimulating or restricting growth) and perhaps signaling that its projected interest rate hikes were closer to ending than previously indicated. Both the stock and bond markets rejoiced, sending stocks higher and bond yields lower. Conversely, it was Powell's comments October 3rd that sent the stock and bond markets into a tailspin, when he said the Fed was "a long way" from its neutral rate. 

Will Santa pay a visit to Wall Street this year? The seasonal late-December rise in the market is commonly referred to as the Santa Claus rally. While not a certainty, as the Stock Trader's Almanac notes, since 1969, the market has posted gains in 34 out of 45 holiday seasons (2017). 2018 has been far from a normal year, with the market dealing with many variables of change and uncertainty, including:

  • Fed Interest Rate Policy and higher interest rates/ cost of capital
  • Trade Tariffs
  • Mid-Term Elections
  • Global economic growth slowdown concerns
  • Brexit and the Italy budget battle with the EU
  • Russian Investigation

As we noted last month and in the Fall 2018 WAA, market pullbacks and corrections are common and happen more regularly than many investors remember. 2017 was one of the least volatile years on record, while 2018 has been more of a normal year for volatility despite the unique set of catalysts. Again, according to Capital Group:

  • 5% pullbacks occur about 3 times per year
  • 10% corrections occur about once per year

We encourage investors to keep this in mind and maintain well-diversified portfolios and a long-term perspective, as market volatility remains likely in the near-term. At this juncture, however, we continue to view the correction as part of a normal process as the market re-calibrates the moving variables. 

Reminder: 2018 RMDs (Required Minimum Distribution) must be taken by 12-31-18! Don't delay because many companies have earlier deadlines to ensure processing.

We got an early present from the IRS...IRA and Retirement Plan Contribution Limits Raised for 2019

IRA and Roth IRA Contribution Limits Increase to $6,000

  • 401(k), 403(b) & 457 plan Salary deferral limits increase to $19,000
  • SIMPLE IRA Plan deferral limit increases to $13,000

Be sure to contact your Nelson Advisor to Increase your Auto-Invests beginning in January to max-out your contributions for 2019! Call: 800-345-7593

For all of the 2019 Increases visit our website:

NEW 2018-2019 IRA/Retirement Plan Limits

    

Market QuickTakes...

  • Stocks post broad-based gains in November and move back into positive territory as Fed Chair Powell changes tune and softens Fed language for further rate hikes

  • Mid-cap stocks, which have lagged most of the year, paced the gains jumping 2.9% in November. Large-cap Dow and S&P 500 gained 1.7% and 1.8%, respectively, while small-caps rose 1.5%. Top performing Nasdaq notably lagged in November edging higher just 0.3%, but finished up 6.2% YTD.

  • While Developed foreign markets slipped 0.3% in November, as measured by the MSCI EAFE index, there was some progress with Brexit as an agreement was made with the EU but still needs to pass in Parliament, while over 50% of EU companies beat Q3 earnings expectations, according to JP Morgan; Emerging Markets gained 4.1% as the US Dollar's rise moderated

  • Despite the market turmoil, the economy, consumer confidence and labor market remains strong, while the housing market shows signs of cooling

  • Strong Q3 corporate earnings results, with Earnings Per Share (EPS) growth of 25% year over year, according to JP Morgan

  • Interest rates fell in November amid market volatility and Powell's comments at the end of the month; the 10-year Treasury Note yield fell 15 basis points to 3.01%

December Market Update...

  • Stocks surged the first trading day of December, following positive comments from the G-20 meetings and a 90-day Trade Truce between the US and China to negotiate an agreement, but the rally was short-lived as other details emerged along with some Trump tweets about being a "Tariff Man" unnerving the market

  • Volatility has surged again but remains within the range established in early October as stocks trade into and out of correction territory, as well as positive and negative territory for the year

  • Given Powell's late November comments, the Fed Meeting December 18-19 will be closely watched; the market still expects the fourth and final 0.25% Fed rate hike of 2018 (+70% probability); Fed statement, press conference and Summary of Economic Projections will be closely watched for any change matching Powell's recent comments

  • Historically since 1946, though no guarantee for future results, the market has had a positive return the following 12-months after a Mid-Term election (18 total), according to CBS MarketWatch. However, the market has fared best with a split Congress, according to Zacks/Investor Business Daily.

  • Despite the volatility, which remains in the near-term forecast, we continue view the positives outweighing negative concerns, especially as strong economic data and fundamentals even better support the now more attractive market valuations

  • We encourage investors to remain steadfast during these volatile times and remain cautiously optimistic for the balance of the year and hopeful for a Santa Claus rally

It’s a great time to review your portfolio, so be sure to call or e-mail your Nelson Advisor for any year-end planning as well as adjusting your monthly automatic investments to make sure you are on track to hit the new increased Contribution Limits for 2019!

Call today to make an appointment at 800-345-7593.

On behalf of everyone at Nelson Securities, we wish you and your family a Wonderful Holiday Season as well as a Happy, Healthy and Prosperous New Year.


Sincerely,

Your Nelson Securities Team