Estes Wealth Strategies
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Compass Points

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Year-End Thoughts on the Market



Hopefully, you've been enjoying the holidays with loved ones and taking a break from the newsespecially the vacillating markets, which we don't recommend mixing with your holiday meals and merriment.

If this past week has shown us one thing, it's that no one can guess what market surprises each day will bring. In writing this letter, I initially thought I would be discussing the precipitous drop we saw on December 24. But then markets astounded us all on December 26 with the greatest point gain in history. By the time you are reading this letter, all of this will be old newsand who knows what will have happened in the days since.

Many clients have asked what our market outlook is, and in a nut shell, it is this:

We are likely in for a bumpy ride in the short to medium term, based on factors that include unpredictable political developments at home and abroad, a slowing global economy, and a potential slowdown in the U.S. economy (a pretty normal development after such a prolonged period of growth). As for the sell-offs of recent days, we don't discount the effect of year-end tax-loss selling as many higher-volume institutional and professional investors harvest losses for tax purposes.

But overall our outlook is positive.

For now, the economic indicators we track and are generally most concerned aboutemployment, consumer spending, corporate earnings, etc.appear to be holding firm. We are not seeing the same kind of stock valuation bubble we saw in 2000, nor are we seeing the systemic, toxic risk exposure that spurred the financial crisis in 2008. If we do move into recession territory (an eventuality we should expect at some point), it will likely not be as severe and intractable as the last one.

While anxiety about the markets has a tendency to provoke knee-jerk (and often regrettable) reactions, staying the course remains our long-term strategy. This means that we are not trying to make buy/sell decisions ahead of the market. Rather, we are methodically managing asset allocations based on each client's objectives, time frame, and risk tolerance. Boring? Perhaps. But prudent? We believe so.

This year, unlike the past several years, we have more opportunities within client portfolios to exchange equities that are posting losses for other securities, thereby generating beneficial tax deductions without changing the overall allocation and investment strategy. This is our focus before the new year.

Finally, it's worth remembering that a down market is not all bad. It can, in fact, be a favorable environment for reinvesting dividends and adding new investmentswhich are expected to see gains when the market rebounds. Those who continued to invest through the 2008 downturn generally did very well over the past 10 years.

We understand that the day-to-day news can be alarming, and watching the market swing with seeming unpredictability is no fun for anyone. But we are watching developments closely and making adjustments as needed to help keep portfolios on track and aligned with client goals. If you have questions about the market generally or about our services and how we work, please give us a callwe'd be very happy to speak with you.

Happy new year from all of us and best wishes for a healthy, happy and prosperous 2019.