QE to QT: 2018 Year End Market Note

December 28, 2018

As we write this year end note the markets have moved from being marginally positive at the end of November to, for all intents and purposes, falling into bear market territory after a vicious sell-off in December. Sentiment has turned negative, momentum is to the downside, and the last few remnants keeping the major indexes afloat, the FAANG stocks, have succumbed to the rolling bear market that has inflicted the majority of the publicly traded companies for some time.

Is this the beginning of a prolonged downturn or a repricing of risk? What is causing volatility to spike? Have the underlying fundamentals changed materially? Or is this a reflection of dysfunctional global policy?

In this market note, we will offer a few of our personal thoughts as well as direct you to a number of year-end market outlooks. These come from some of the best and brightest that have been warning of the potential for increased volatility as well as the repricing of risk. They don’t all agree, but what you will see is some common themes of where we are in the cycle.

One thing we should note, at this point with the markets falling into bear market territory, valuations are more reasonable, economic fundamentals are still positive and corporate earnings while contracting in their rate of growth are still supportive.

As we have seen in recent months, markets move in cycles and the current market is not immune to these cycles. We are not suggesting complacency, but rather a thoughtful allocation of capital going forward.

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