It is always a challenge to pinpoint the bottom of a market when selling becomes the dominant force. Fear and greed tend to drive the investment decisions of investors who often liquidate positions during bear market periods as sentiment reaches its most negative level. Ironically, those time often create bottoms in markets. As we head into 2019 the markets across all asset classes are facing some of the sloppiest trading conditions in years. Stocks have been plunging since October in what has turned from a dip because of rising interest rates into a bear market in equities. Commodities have come under intense selling pressure. The price of copper has declined from over $3.30 per pound in June to under $2.68. The price of lumber halved in value since May, and crude oil plunged from $76.90 on October 3 to under $45 per barrel at the end of 2018. Digital currencies, an asset class that was all the rage one year ago have plummeted with the leader of the pack Bitcoin falling from $19,000 in December 2017 to under $4000 in December 2018. The devaluation of assets as we face the unknown of a new year has created an environment of fear for investors.
Markets reflect the economic and political landscapes which are both highly uncertain at the end of 2018. The path of the stock market in 2019 is likely to reflect the ever-changing U.S. political landscape. Until the recent selling that took hold of the market starting in October, tax and regulatory reforms turbocharged earnings which sent stocks to record highs. However, rising interest rates and the fear of a different brand of gridlock in Washington DC following the midterm elections that put the House of Representatives in the hands of a Democratic majority could spell problems for stocks in the coming year. The rising prospects for impeachment hearings and a nation divided along political lines just as the 2020 Presidential election season gets underway are likely to translate into a continuation of a bumpy road for stocks. The decline in the price of copper and oil could be harbingers of recessionary pressures on the U.S. economy, and both political parties will point their fingers at the other side of the aisle to assign blame.