Year-End Market Update 2019
By Maura C. Schauss, CFP® and Todd I. Youngdahl, CFP®
On August 21, our current bull market passed 3,453 days old, making it the longest on record. For years, people have been predicting and anticipating the next bear market, but it looks as if it is going to stay in hibernation for a little while longer. Let's take a closer look.
Stellar Labor Market
At least, that’s what the labor market is telling us. The November jobs report was stronger than expected and brings the average for 2019 to 180,000 jobs added to the economy each month. That is more jobs than needed to provide positions for new entrants into the workforce. This is reflected in the drop in unemployment back down to 3.5%, which is the lowest it has been in the last 50 years.
Wage growth is also outpacing inflation, with wages rising over 3% in November. Non-supervisory wages grew 3.7%, showing that average workers are really reaping the benefit of such a long economic expansion. The labor market is strong by any measure, which should allay fears of a recession happening anytime in the near future.
While the jobs market may be the star of the show, the stock market is putting in a strong performance as well. It has been a bumpy ride for investors, though. August was a rough month, with low returns and high volatility, but September brought markets back up to where they were in July. Then the beginning of October felt a lot like August again. Things have smoothed out since then, with the S&P 500 reaching a new record high in late November.
While no formal deal has been announced, both the U.S. and China insist that things are going well as they negotiate a trade deal. These trade talks continue to be a major factor affecting markets, and if things turn sour, the stock market could follow suit.
If you take a step back to look at the big picture, trade is declining overall for the U.S. There are several reasons for this. First, in the second half of the last century, the U.S. really opened up to trade as a way to protect against communism in vulnerable countries. Now that the threat is gone, that motivation is gone as well. Also, in our current economy, services are becoming more important than goods. Services are usually delivered closer to the customer, reducing the need for international trade.
In July, the Federal Open Market Committee cut rates for the first time in 11 years and announced the end of their balance sheet reduction. They did the same in their next two meetings, cutting rates again in September and November. The cuts were due to “the implications of global developments for the economic outlook as well as muted inflation pressures.”
Further cuts are not expected immediately. November’s strong jobs report gave the Fed reason to pause, and they will also likely wait to see what happens with the U.S.-China trade talks before making any moves.
Overall, the economy continues to be strong. However, it does have some weaknesses. Productivity is down, which, when combined with increased wages, results in lower corporate profits. U.S.-China trade uncertainty has negatively impacted manufacturing and business investment, which could continue or worsen if talks break down and they fail to reach a deal.
In addition, the bond yield curve inverted in August, which is when the two-year yield rises above the ten-year yield. Such an inversion is a common indicator of a coming recession. It isn’t a sure thing, though. While an inverted yield curve has coincided with the last seven recessions, it has also given nine false recession signals over the past 40 years.
While the U.S. economy continues to be strong, how is your own personal financial situation? Even during good times, many people still find themselves wondering if they are making the best decisions and taking full advantage of the opportunities available to them. If you would like an expert review of your finances to make sure every area is working together to reach your goals in an optimal way, our team at Washington Wealth Advisors is here for you. Call our office at 703.584.2700 or email email@example.com.
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