It will surprise many people to learn that despite the performance of US stock markets in the first 10 months of 2018, they will end the year back at December 2017 levels. Indicative figures at the moment suggest the S&P 500 will end the year down 3.8% the Dow Jones Industrial Average down 2.1% with the NASDAQ surprisingly ending the year unchanged. The last month has been horrendous for US stock markets with political infighting, an interest rate increase by the Fed and concerns about the economy prompting investors to cash in their chips.
Stock ratings now more affordable
There is an argument to suggest that the recent correction in the Dow Jones Industrial Average, S&P 500 and the NASDAQ 100 have brought stocks down to more affordable levels. Many will also point to the fact that the Fed has increased interest rates as an indication the economy is far stronger than many people believe. The fact that the NASDAQ 100 has been the better performing index so far over the last 12 months will surprise many.
You could argue that technology premiums were relatively low at the start of the year prior to momentum building and then collapsing towards the end of the year. It is also clear, those traders who jumped aboard the bandwagon amidst concerns about Donald Trump presidency and sold before the recent slump would have pocketed a significant return.
Medium term upside
The problem at the moment is the fact the US government has effectively closed down until the new budget can be agreed. We also have the ongoing spat between the Fed and Donald Trump not to mention conflicting indicators regarding the strength of the US economy. However, for those investors willing to look to the medium term there are many reasons to be positive.
It is safe to say that much of the froth has been blown off the US stock market, stock ratings are now more affordable and the US economy does appear to be stronger than many have been forecasting. While recent indicators from the Fed have not been fool proof (we know mistakes have been made) surely they cannot afford to increase interest rates if the economy is on a knife edge?
As much as it pains followers of democracy to admit, Donald Trump is doing himself no favours with the political elite. There is now a real chance that he could be impeached in 2019 and his supporters begin to turn against him. What was once his strength, his vision and focus, could now turn out to be his Achilles heel with the president simply unwilling to negotiate on issues such as the Mexican border wall. There is every chance this could bring about his downfall and lead to a significantly less volatile political environment.
Is it time to invest?
At this moment in time it would be no surprise to see further downside in US markets as investors look to 2019 with concern and trepidation. Traditionally a sell-off such as the recent 1000+ point fall in the Dow Jones Industrial Average would prompt the bottom of the market for many people. However, there are concerns that political instability could impact US economic growth in the short to medium term with many investors still treading carefully.
For the brave, we may look back on this as an exceptional buying opportunity. Only time will tell….