Uncertainty and volatility seem to be the buzzwords for 2019. As we look ahead to the new year, concerns about trade and more will weigh on financial markets, carrying some financial risk and opportunities for individuals.
Here are five key issues to watch for in 2019.
1. US and global growth slowing
Amid concerns about global trade disputes, including the U.S. and China and Brexit, the International Monetary Fund looks for world growth of 3.7 percent in the coming year. That’s why IMF Managing Director Christine Lagarde calls recession fears “a little bit overdone.”
As for the U.S., the outlook for growth is lower for the year ahead at around 2.5 percent, compared with close to 3 percent in 2018. People are more concerned about 2020 for the U.S., as the beneficial aspects of the income tax cut wane.
One note of caution: Recessions are notoriously difficult to predict. The track record in modern history is full of failures to predict downturns, as well as plenty of false predictions of the end of economic cycles. We know recessions are inevitable. But their length, depth and severity are very difficult to know well in advance.
2. More market volatility
2018 has seen an acceleration of volatility in price movements in financial markets, with big moves to the downside for individual stocks as well as the major averages.
Volatility has also been seen in the fixed-income market, reflected in the decline of, for example, the yield of the benchmark 10-year Treasury bond. That, in turn, helps to set yields for mortgage rates. Also, the sharp decline in oil prices this year is another example of dramatic moves.
Few veteran market watchers think the volatility will quiet down anytime soon. For investors and others, that means a bull market for seat belts and antacid.
3. Slower pace of Federal Reserve rate hikes
We don’t know when exactly the Federal Reserve will stop boosting interest rates this cycle. But the end is thought to be possibly at hand next year.
At the conclusion of the Fed’s December meeting, some members of the Federal Open Market Committee predicted there will be two rate hikes in 2019, down from previous projections of three hikes.
As the central bank led by Chairman Jerome Powell sees more downside risks appear on the horizon, it might well signal a pause or an end to the rate hikes, which began in December 2015.
That means some borrowing rates could be close to their peaks. Unfortunately, that would also signal that savings rates might not be headed much higher anytime soon.
4. 2020 presidential campaign heats up
In the coming months, we’ll begin to see candidates jumping into the next presidential election campaign cycle.
There will be no shortage of Democrats vying for the nomination and the chance to oppose President Donald Trump. For the Democratic party, the challenge will be to decide whether it caters to the center of the party, as exemplified by former Vice President Joe Biden, or more progressive or left-leaning candidates, like Bernie Sanders and Elizabeth Warren.
Related to all of this also are the investigations surrounding the president and the administration, which are sure to heat up as Democrats and Speaker Designate Nancy Pelosi take control of the House of Representatives.
5. Trade worries, unrest, weigh on markets, outlooks
In France, the U.K. and the U.S., a growing number of citizens have rebelled against globalization. In the face of growing income inequality around the world, some people are effectively asking the question: “What’s in it for me?”
On the other hand, global economies and markets are hugely interconnected. Think about how Apple’s iPhone is the result of collaboration stretching from Cupertino, California, to plants in China. Same with auto manufacturing, which is highly complicated, including the sourcing of parts from plants across borders.
Any political decisions or movements that put trade in peril will risk upsetting supply chains and consumers’ access to products. They also weigh on business leaders’ decisions to hire and make investments. Ultimately, all of that feeds back to consumers and workers.
What to do with your money
Uncertainty and volatility seem to be among the key watchwords for 2019. And, while uncertainty is always with us, there are times (like the present) when we have a heightened sense of it.
You’ll never go wrong by building emergency savings for that inevitable rainy day that might be associated with unemployment or unexpected expenses. And, even if nothing truly negative occurs, extra financial flexibility or options are good to have.
For workers, or those aspiring to work, this might be about as good as it gets for the job market. Keep those professional connections and your employer network activated to seize upon any good opportunities or to respond quickly if current employment ends abruptly.
For borrowers, if tougher times are ahead, that’s yet another argument in favor of paying down or paying off debt. Credit card debt is at the top of this list. If balances aren’t paid off immediately, debt with double-digit interest rates gets more expensive very quickly.
For investors, one of the keys regarding your decision-making involves your time horizon, as well as your appetite for risk. Think about the length of time that you expect to hold on to your investments, such as mutual funds, ETFs and individual equities, among other assets. If you’re looking at retirement savings, which won’t be tapped for many years, then the swings in the market, however unpleasant, have less relevance than if the funds are exposed to equities intended for near-term use for a down payment on a home or a child’s college education. In these latter instances, you might want to consider moving some of the funds into a high-yield CD to protect your investment or avoid loss of principal. And if the market swings are causing you to lose sleep at night, it might be time to dial down some of the risk in our portfolio.