Economic and Market Forecasts
Market Commentary | Published QuarterlyThese forward-looking forecasts are an integral part of our tactical investment process. Instead of using a buy- and-hold strategy, we understand that risk changes over time, and we make ongoing, tactical changes to our portfolios to consistently move away from risk and toward opportunities. These changes are based in large part on the forecasts enclosed, which are generated from continually monitoring current and historical data and then forecasting future conditions of domestic and global economies and markets.
We’re in the second longest economic and bull market cycles in U.S. history, and the reality is that we’re closer to turns in both than we were a year ago. However, we’d suggest that neither is imminently at our doorstep. We base this outlook upon quantitative analysis of both historical and current data. Following are our forecasts for both the markets and the U.S. economy for Q4 2018 and into 2019.
Fundamental key indicators support the notion that there’s still life in both the market and the economy and that we are not witnessing the “beginning of the end.” In addition, of the ten bear markets since the 1920s, eight of those have come from within a recession. The economy now is strong, and we believe that will continue well into 2019.
With the midterm season just behind us, we can look to historical data for hints of possible forward-market performance as it relates to U.S. political events. The Dow Jones has followed a well-defined pattern around our election cycle. The year of midterms is historically the weakest, on average, and the year after midterms (the third year of a presidential election cycle) is historically the strongest. The primary reason is likely a stimulus being released as it relates to the presidential election cycle.
The data actually suggests that DJIA performance is better when the office of the president and Congress are split across party lines.
As tactical managers, we know that the markets are not based upon politics but the economy. It is far more probable that the natural business cycle, regulatory climate, Federal Reserve, interest rates, and global demand will affect demand for our goods, and the markets will continue to follow sound economic principles. Into 2019, we see many reasons for the economy to continue to grow.
To your fiscal health,
Kelly F. Crane, CFP®, CFA, CLU, MBA
Earl Knecht, CFP®
Robert M. Lance