Since Trump became president, I am sure even the financial experts have been puzzled and frustrated by the volatility in global markets. Most retirees have seen their portfolio yo-yo up-and-down with huge swings even on a weekly basis. A wrong tweet can cause major market movements! Most of the stock market movements were mostly not driven by economics in 2018 but more so by the actions of the Trump administration.

The Spike

The big tax break was what the market bulls were betting on and they got it. That juiced the markets significantly as US companies received a massive windfall from the changes in the tax law. The adrenaline quickly boosted stock prices for several months but at the back of their minds, investors know it is just a sugar high. No one expected this to last. There is also evidence that the tax break did not do much for main street — many large companies used the tax breaks to repurchase their own stocks instead of investing in new projects. By year end 2018, the market has begun to shrug off the tax break sugar high. That’s why we are seeing huge downward pressure since October.

The Worry

Beyond the initial boost to the market and the subsequent volatility in 2018, there is a lot more to fear in the coming year. Here are some things you should look out for:

• The Democratic control of the House beginning January 2019 will create a lot of chaos in the US politics. Almost every major organization that Trump is associated with is under investigation by the Feds or state attorneys. Now add to the list the House committees under Democratic control with subpoena powers . Given Trump’s legal problems, the market should brace itself for wild rides especially if the prospect of impeachment in the House becomes more real.
• The US-China trade war is not something that can be easily resolved. If no deal is struck soon, tariffs will likely increase significantly beginning end-Q1-2019. With an already slowing China economy and some believe that the US economy has peaked, the additional tariffs will certainly make global markets more rattled.
• The Brexit divorce date is end March. Anything can really happen there. Worse case scenario is a no-deal Brexit which should throw the UK pound and it’s economy in a tail spin. There is even talk about a second referendum. Given the chaos between PM May and the UK Parliament, the market is not ruling anything out. We are just only about 100-days away.
• Geopolitics is also adding to the market’s instability in 2019 with more hotspots getting hotter. The South China Sea will see more tense confrontations between the US challenging China’s claims to most of South China Sea and with China continuing to build and arm new island fortresses in the area. Russia’s aggression in Ukraine has not cooled and may be getting even more tense. US-Russia relationship will also get tested with the Special Counsel probe. As though these two major geopolitical risks are not enough, we can also add North Korea and Middle East conflicts.
• The world is also just coming off another long term sugar high in QE or quantitative easing — or simply the end of cheap money. In laymen’s term, QE was simply central banks “printing money” to stimulate the economy. The US Federal Reserve led the way. With cheap money, corporations worldwide have loaded up on debt significantly. That’s becoming a problem with interest rates rising as the world’s central bankers slowed down the printing press. There will be lots of pain to go around for companies that borrowed heavily. This will create headwinds for markets in the foreseeable future.

Against this backdrop, what should you do or not do to steer your retirement portfolio through the choppy waters in 2019? Coming next in Part II of this report.