It is becoming more clear that investors should take caution heading into the holiday season as the high risk of market downside in December looms ahead. Recent reports highlight a number of warning signs including increased volatility in the US stock market, trade tensions between major economic powers, political uncertainty, and eroding investor confidence.
Despite a strong third quarter in the market, investors are being cautioned to prepare for the potential of a downturn in December. Trade tensions between the US and China are still unresolved and tensions are increasing as the US announces plans for tariffs on European automobile imports. These factors, combined with potential political instability in the U.S. due to an ongoing impeachment inquiry, and international unrest in Hong Kong, are causing investors to become increasingly wary.
Investors are further unnerved by rising trade deficit figures in the U.S., signaling weakening consumer confidence and demand. Any decline in demand could cause prices to fall sharply and lead to falling profits and stock values, resulting in a negative effect on the market.
At the same time, interest rates are near historical lows and future predictions are predicting they won’t be increasing for the foreseeable future. The current low interest rate environment makes it difficult for businesses to invest and create new jobs which could fuel the economy, further compounding the risk of market downside in December.
It is important for investors to take precautions and be aware of the potential risks during this key period in the markets. Investors should focus on understanding the current economic environment and its potential effects on the market, as well as their own investment approach and diversification strategies. While these risks are not trivial, there are still many opportunities in the market and with proper planning and caution, investors should be able to find success during the holiday season.
