“Ladies and Gentlemen, this is your flight crew speaking. As you’ve noticed, we have encountered some turbulence. We would ask, if you are not seated, that you kindly return to your seat. Please fasten your seatbelt and remain seated until we have turned off the “fasten seatbelt” light. This turbulence was anticipated and there is no reason to be alarmed. We will remain on our original flight path and we expect to bring you safely and on schedule to your destination.”

Last week the Dow Jones Industrial Average dropped 10% below its previous high. As you may recall from our previous discussions, this meets the definition of a market “correction.” The Dow declined nearly 500 points on Friday and another 500 points yesterday, sealing a decline in the index into correction territory which began in early October.

Despite the stock market’s recent performance, the US economy remains quite healthy. Unemployment is near all-time lows. Industrial production is up. Corporate profits are strong. GDP (Gross Domestic Production) growth has been solid all year (2.2% in the first quarter, 4.2% in the second quarter, 3.5% in the third quarter) and the Federal Reserve Bank of Atlanta expects the economy to grow at 3% in the fourth quarter. Consumers are spending. Workers’ wages are increasing. Inflation nonetheless remains muted. While exports are down, imports are up.

There are, however, some looming threats to the American economy. The stimulus caused by the tax cut, which was passed in the fall of last year, appears to be waning. The Federal Reserve is raising interest rates, which is a headwind for businesses. Investors are questioning the values of major tech stocks (Alphabet/Google, Amazon, Apple, Facebook) and this has brought the tech-heavy NASDAQ index down by 15% from its August 2018 high.

There are also challenges globally. Industrial production and retail sales data coming out of China have dropped off. Italy has a major budget problem and appears to be entering a recession. Germany’s economy is contracting. France is dealing with both social unrest and business contraction. The European Central Bank has cut its forecast for growth in the European Union. The United Kingdom’s departure from the European Union (aka Brexit) looks threatening, as Prime Minister May cannot seem to get Parliament to approve her deal with the EU. The US and China are embroiled in a major conflict over trade and tariffs. So far, the impact on both countries has been somewhat limited. However, if a full-blown trade war erupts, there will be few winners.

So, please remain seated, as it is the safest place to be while on this journey. Who knows when the “seat belt” light will be turned off …

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