2018 Year in Review

By The Trust Company on January 11, 2019



“Volatility” is the word that best describes the market in 2018.  For the year, the stock market reached new highs and gave it all back by the end of December. Stocks were sold, bought, and sold again in rapid order, causing benchmark indexes to post noteworthy gains and losses on an almost daily basis. As a result, investors rode a roller coaster of stock prices throughout the year.

2018 saw some positive highlights as well. The economy expanded at an annual rate exceeding 3.0% for the first time in several years. The unemployment rate hit the lowest mark since 1969. The Federal Reserve, based on the strength of the economy and labor market, raised interest rates four times during the year. Ultimately, the benchmark indexes listed here could not match their 2017 year-end values. In fact, several of the benchmark indexes suffered their worst annual losses in many years.

Eye on the Year Ahead

As we turn the page on 2018 and look forward to 2019, these are the current thoughts of The Trust Company.

Slowing growth does not mean there must be an impending recession.  
GDP growth in the US for 2018 will finish around 3%.  If we finish above 3%, it would be the first calendar year for the U.S. since 2005.  Current GDP projections for 2019 are in the 2-2.5% range, in-line with GDP from 2010-2017.  Many pundits point to this slowing as a sign of recession.  We think it more probable for a surprise on the upside.

The economy can withstand higher interest rates – for now.  One source of volatility has been concern over the economy faltering because of high interest rates.  The economy has become conditioned to ultra-low interest rates.  While there will be an adjustment period in the market’s mentality, the economy and stock market can handle interest rates in the 3-4% range.

Valuations are not expensive. Anything is possible but not all things are probable.  It is possible that valuations only appear inexpensive because they do not reflect an impending recession.   We do not believe that is probable given the economic data like the jobs numbers and wage growth.  With the S&P 500 at a Forward P/E of 13.4x and a Free Cash Flow Yield of 5.5%, we feel there are attractive opportunities.

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