Third quarter GDP growth came in at 3.5%. While this was down from the 4.2% registered in the second quarter, there was no indication that the long-running expansion was running out of steam. The jobs market echoed this strength with nonfarm payrolls increasing by 250,000 in October and the unemployment rate holding steady at a low 3.7%.

At its November 8 meeting, the Federal Open Market Committee decided to make no change in interest-rate policy. This was widely anticipated, as was the Federal Reserve (the “Fed”) indication that further rate hikes were likely, with the next one probably coming at the December meeting. While the Fed’s tightening trajectory has been very predictable for the past several years, 2019 may be less so, as the Fed begins to approach what most economists would regard as a “neutral” federal funds rate.

The midterm elections did not bring a massive blue wave, but importantly did give the Democrats control of the House of Representatives. This complicates the outlook for any major legislative progress with the possible exception of an infrastructure program. It also heightens the risks of both a government shutdown and last-minute theatrics over the debt ceiling.

As 2018 comes to a close, there are several issues on the horizon that could cause market turmoil. The ongoing political skirmishes over trade could deepen and cause meaningful downturns in worldwide trade and growth. Overseas, the deadline for Brexit continues to draw closer and companies have to prepare contingency plans for a no deal scenario. The European Union is also dealing with an Italian government defying Brussels on their budgetary rules. Finally, the combination of Fed tightening and balance-sheet reduction, together with significantly higher federal borrowings, could cause long-term rates to increase much more quickly than currently forecast. The impact of higher rates on business investment, housing and the stock market are all wild cards, that must be monitored closely.