Market Update – Caution, Not Panic

Market Update – Caution, Not Panic

Given the equity market volatility over the last several months, emotions are running high and
there is a sense of panic in the air. After reaching all-time highs this year, the major U.S. equity
market indexes have done an about face and have declined by double digit percentages from
those peaks. The causes of the decline have run the gamut from concerns about a slowdown in
economic and corporate profit growth, the Chinese tariffs, a more aggressive Federal Reserve,
weakening international economies, and political dysfunction. At this time, caution is warranted
since the markets are fragile and susceptible to further bouts of volatility.

A couple of the major concerns in the market right now center on decelerating U.S. economic
growth and the Federal Reserve. While the strong GDP growth witnessed this year is projected
to decelerate as the impact of fiscal and monetary stimulus subsides, growth is still projected to
be in the 2% range going forward, consistent with the rate of growth exhibited for most of this
economic expansion. A deceleration in the rate of growth does not automatically imply a
recession and talk of a recession seems somewhat premature at this point. Over the course of
this economic expansion, there have been periods of decelerating economic growth that did not
result in recession, most notably the latter half of 2015.

As for the Federal Reserve, the Fed raised its target for the Federal Funds Rate by .25% last
Wednesday to a range of 2.25% to 2.50%. The Fed maintained its balance sheet normalization
and noted it anticipates an additional 2 rate increases in 2019. Overall, the policy action and
forward guidance was hawkish. The risk at this point is a policy mistake. Moreover, the Fed’s
ambivalence to the current market volatility is troublesome. A continued decline in the equity
markets could negatively impact consumer and business confidence exacerbating a slowdown in
economic growth. The upside at this point is that the Fed may be nearing a neutral level and may
scale back on additional monetary tightening in 2019.

As for the equity markets, the declines witnessed since October have been rapid and dramatic.
The Dow, Nasdaq, and S & P 500 are down 19%, 24%, and 20%, respectively, from their all-time
highs. However, when looking at year-to-date returns, the declines are not nearly as dramatic
with the Dow, Nasdaq, and S & P 500 down 12%, 10%, and 12%, respectively, not including
dividends.

While the current environment necessitates a cautious stance, panic and indiscriminate selling is
not the recommended course of action. The environment is highly emotional and to some extent
the market appears to be pricing in worst case scenarios and events that may not happen. This is
typically the case when fear grips the market. Overall, the U.S. economy still appears poised to
grow, albeit at a slower rate. Given this backdrop, what is recommended is to review your
financial plan and to ensure your portfolio is appropriate given your goals, risk tolerance, and
time horizon. If you have any questions about the market or your portfolio, please contact your
financial advisor at Raskob Kambourian.

Raskob Kambourian Financial Advisors is an independent, fee-only comprehensive financial
advisory firm registered with the Securities and Exchange Commission.  We offer expertise,
competitive pricing, and personalized financial services to meet your “Life Planning” needs.