Periods of Market Volatility
Strong economic growth continued in the third quarter, signaling a continued bull market in stocks and future rate hikes from the Fed. The Fed is following the economy in setting policy. The Treasury Bill Rate is nearly 20 basis points above the Fed funds rate.
Trade tensions are diminishing. The US now has deals with Mexico and Canada, as well as South Korea. Japan and Europe are also making progress. However, China has become isolated. China may be willing to buy more US goods and a deal is possible but it will likely include tariff reductions as well. A global tax cut would be very bullish for the sagging international market.
In the technology sector, during periods of uncertainty, innovative companies gain significantly in volatile times. Shares get hit disproportionately in the early stages of a correction, but they recover much faster than many of the traditional indexes viewed as safe havens. Facts win once the emotional reaction ends.
Real GDP grew at a 4.2% annual rate in Q2 and future quarters may not grow quite as fast. It’s fair to expect an average growth rate of 3%+ for both the remainder of 2018 and 2019. More growth means higher profits, which in turn will drive the stock market higher. There is no sign of a recession coming for at least the next two years, and potentially much longer.