Nowhere to run, nowhere to hide….

The market was driven by a lot of uncertainty in the fourth quarter. Whether it was China trade tariffs, midterm elections, the government shutdown, slower earnings growth, or concerns about a future recession, the market dropped from its September highs to close the year with a loss. In fact, 89% of all global asset classes generated negative returns in 2018, including bonds. Despite the losing year and all of the headlines calling this the worst year in a decade, we have been on a great run the past 10 years. With the market drawdown, stocks are priced at very attractive levels. The U.S. Economy is expected to grow this year, but the recent market action would make you think that a pronounced economic slowdown is around the corner. While we don’t believe that the economy will grow as fast as it did in 2018, we do see economic growth continuing in 2019.

Even though the tax law feels like ancient history, this is the first tax filing period where it is in effect. On the positive side, the marginal tax rates have been lowered. This means that if everything else stayed equal (it didn’t), you would pay less in taxes this year. As for the other changes in the tax bill, the biggest change is that the standard deduction has been doubled. It has been estimated that only 6% of tax filers will now need to itemize their deductions. This is a huge simplification for the majority of us. The other big change (especially for those of us in Illinois) is the $10,000 limit placed on the deductibility of state and local taxes. This limitation applies to state income, sales, and property taxes. This will further push taxpayers to use the standard deduction. As always, if we help you with your tax preparation, start looking for your tax documents in the mail starting in February.

Moving forward, we can expect the news cycle to accelerate as a divided U.S. Government tries to find a way to work together. Who knows what the Democrats in the House, the Mueller Investigation or the next presidential tweet will do? This is the world that we are living in. It was a lot of uncertainty that drove the market down last quarter. Progress on just a few of those issues (especially resolution of the China trade tariffs) could quickly revive the market and push it higher. So while we keep a watchful eye on the uncertainty, we look forward to a productive 2019.

As always, we are here for you. Call us if you have any financial issues that you would like us to review.

Sincerely,

Michael Cantlon
Thomas Guyett
Robert Gephart