The final nine weeks of the calendar year have already started. While we can’t predict prices over the short term we can pick out the news stories that will impact markets worldwide until year end and into 2019. Here are our top five picks, listed in order of importance.
Rate decision: Wednesday, December 19
This one is the big one, the next rate rise decision. Many investors feel we are damned if we do and damned if we don’t. Early in October, trading activity showed a 99% chance of an increase, before dropping to 81%. The main issue on the table is inflation. There is no sign of inflation increasing beyond where it is today. Unemployment keeps falling, utilization is high, wage growth is moderate and the economy as well as profit growth are healthy. There is very little reason to hike the rate. It would be a positive surprise if the 10 year Treasury drops below 3% and the Fed does not increase rates. Stay tuned.
Election final: Friday, November 10
By November 10th we will know all the results, up and down the ballots, as recounts and disputed outcomes will be resolved by then. There is a lot at stake in this midterm election for both parties, however its short-term market impact is muted. The market impact comes from whether politics is likely to be activist (Republicans keep the Senate and the House) or neutral (parties split the Senate and House). If Congress remains activist then you can expect more bills on spending, taxes, trade and immigration. If Congress becomes neutral then very little legislation will be passed. The impact of politics will fade for two years.
Trump and Xi duke it out on trade: Saturday, December 1
Presidents Trump and Xi will have a private meeting on tariffs and trade at the conclusion of the Group of 20 Summit in Buenos Aires. So far, all the tariff threats have been realized and implementation has occurred or is coming soon. At this meeting any sort of lull or truce in the trade war with China will have a positive impact on stock prices. Trump has a way of pulling rabbits out of hats at these “personal” meetings. Or he insults his counterpart and leaves. This one, like our president, is too unpredictable to call.
Iran sanctions bite hard: Monday, November 5
In just a few days the United States and the rest of world will learn the limits of sanctions on Iran. Financing for the purchase, sale and movement of oil will be cut off. A soft cutoff means there will be a moderate price impact because there will be so many exceptions within the SWIFT money transfer system. A hard cutoff will cause a big upward movement on the price of oil. It will also put unbearable pressure on Iran’s political leaders. A change in Iran’s leadership will occur.
Last deal date: Monday, December 31
This date will answer a big question: Will 2018 be the fourth year of deceleration in mergers and acquisitions? Takeovers and mergers have contributed to higher stock prices at times this year around the globe. This week IBM proposed buying RedHat for $34 billion in a friendly deal, settlement date uncertain. Barring several miracle deals the mergers and acquisitions will continue to decline. The all-time record for deals completed is $4.1T in 2007.
It pays to be aware in a news-driven market. It is important to know these things are happening and to have a strategy for investing before, during and after they happen. What matters for you is that your goals, expenses, income and investments stay aligned when the market throws a curve ball. We can’t predict where the year will end up but we can plan and prepare for many different outcomes. Please let us know if you would like to talk about the alignment of your investments and goals. Curiosity and conversation are welcome.
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