American Consequences - November 2018

THE BIGGEST STORIES THAT MATTERED FOR THE MARKET LAST MONTH

WHAT MOVED THE MARKET

The likelihood of a Democratic House and Republican Senate had already been taken into account. There was also rare cause for celebration when China announced it may cut its light- vehicle import tax by half, providing a boost to the battered industrial sector. Market corrections can be vicious, but the economy remains strong and there are no major economic headwinds in the foreseeable future. October was an awful month for investors, but no different than the volatility we experienced in February. Markets can’t go up in straight lines. Be patient. We’re not in a bear market yet. The Federal Reserve made its footsteps heard once more... On November 8, the Federal Open Market Committee released its policy announcement, leaving the federal funds rate in the range of 2% to 2.25% (as expected). THE FEDWEIGHS IN

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THEWORST MONTH FOR STOCKS SINCE THE FINANCIAL CRISIS Weak growth, tariffs, and political conflict in the EU sent global equities into a free fall for most of October. While Prime Minister Theresa May fought to draft a Brexit deal in the British Parliament, the Italian Ministry of Economy and Finance pushed back on the EU’s demand that Italy’s deficit budget include less spending. Aside from the obvious risks of overspending and implementing sweeping social programs during a deficit, there is fear that other members may follow suit, creating more economic conflict in the region. Meanwhile, EU bellwether Germany reported its worst quarterly growth in five-and-a- half years. Investors didn’t fare much better in U.S. markets, either. Oversupply, tariffs, competition, and loss of momentum combined to cause many familiar names to sell off on the month. Earnings from Netflix,

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Google, Facebook, and Amazon were on target, but lower than expected, and Amazon’s downbeat fourth-quarter outlook put the FAANG trade into a tailspin. The S&P 500 Index was also down 6.94% for the month. The November midterms caused some concern, but the results had little effect on the markets.

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The committee noted continued economic strength and appeared to be on track to raise rates to 2.25% to 2.5% in December. (There were also concerns about tariff and trade policy, although the official data

10 November 2018

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