When addressing if the stock market glass half full or half empty?
As glasses are about to be raised to toast the New Year, investors may still be trying to determine whether that glass is half full or half empty. Despite strong economic growth in 2018, the market entered last week brewing with a trio of worries, including trade disruptions, geopolitical concerns and the specter of further Fed rate hikes next year. Additionally, the threat of a government shutdown drove a fresh bout of volatility in Friday's trading.
The Fed View: the glass is half full. As was widely expected the Fed raised short term interest rates to a range between 2.25 and 2.5%. The Fed also signaled it would raise rates two more times next year. While that is down from the three times that it stated earlier, overall it is still suggestive of an economy that is growing even as the pace is slowing from the fading effect of the tax cuts and federal stimulus.
The Fed’s upbeat tone is at odds with downbeat market sentiment. The market reaction to the Fed rate hike was a broad-based equity selloff. Concerns centered on the market worry that corporate earnings have peaked, the bull market is over and the Fed might be raising rates more than the economy can support. Though our outlook is that the pace of earnings growth will decelerate from a rate above 20% to less than 10% next year, we expect stock prices will continue to grow. For this reason we see opportunities for the long-term-investor despite the market's glass half empty view. Here's why.