All the major indices finished 2018 down for the year, with the steepest declines recorded in the fourth quarter. And, just when investors were coming out of their New Year celebrations, Apple’s announcement of disappointing sales in China on Wednesday, gave the signal that the bad times for stocks could continue into 2019. If you are a long-term investor, volatility like that of the last few months isn’t something that should cause panic. But, the bond market continues to send the message to the markets that there is a real fear of the economy slowing down.

And further danger is lurking: Corporate earnings will likely get trimmed even further with many companies following  Apple’s cue, cutting their Q1 guidance or reporting weak results and guiding for a weaker Q2. Already S&P earnings growth for 2019 has been trimmed to 7.8% in 2019 from previous forecast of 10.1%. An earnings recession, if it were to happen, could be a key indicator of actual economic recession and that would make Q4 2018 sell off look like a beautiful spring day.

In the meantime, the Fed’s behavior is unsettling to say the least. The Fed Chair, unlike his predecessors, appears to be reacting to every volatile day, trying to calm the markets with statements that only whipsaw the market even more the next day.

Future Wealth’s View

The fact that it is going to be rocky stock market in 2019 is a given. After years of low volatility and calm markets with all time highs, things are certainly becoming unhinged. Analysts who were predicting that the S&P 500 will be north of 3000 by end of year 2018 and will continue modest growth in 2019 have now, all but a few, cut their estimates to well below 3000 for end of year 2019.

But, the important and actionable advice comes not from analysts but from corporate results and economic data. And even the companies have had little insight into their own future. Apple, Wells Fargo, Citigroup, Applied Materials among others, spent billions buying back their own stock in first three quarters in 2018, only to lose a good chunk in the Q4 sell off. Apple was one of the big re-purchasers buying back its stock at an average of $222.07. The stock is now in the low $140s. And now, with the business environment looking weaker, those buybacks look like poor timing.

And so, as we look ahead to 2019, the question is how do we spot the coming of a recession? That is almost as hard as spotting the next Steph Curry at the annual NBA draft. But, hard economic and corporate business data give valuable clues. Q1 2019 earnings season in a few weeks will be telling. And if the Fed Chair would be less concerned about avoiding a similar fate of 800,000 federal workers and lose his pay, and instead, focus on fundamentals and sharing valuable economic data, a clearer picture could emerge by end of Q1 2019.

On the other hand, if the Fed responds to every Trump tweet, the Pink Floyd song will define the declining importance of the Fed – “All in all it’s just another brick in the wall”