An ugly, year-end stock-market selloff and the return of volatility has put the economic expansion, soon to be the longest on record, under the microscope. Cyclical sectors, such as housing, are slowing, as the Federal Reserve raises interest rates.

The risks to the economy seem to be multiplying, from trade tensions to national security threats to a president who prefers to conduct the nation’s affairs via Twitter.

The question everyone is asking is: Are the gut-wrenching ups and downs in the U.S. stock market just noise? Or is the flirtation with a bear market an early warning sign of what the U.S. economy can expect in 2019?

The Fed will be the ultimate arbiter of how things play out.

It is said that the stock market

SPX, +0.85%

 is not the economy, and that’s true. But the stock market does convey certain information and expectations about things that affect the economy, and are affected by it, such as corporate earnings. And those profit expectations have been tempered after the spectacular, double-digit gains in 2018. (Year-over-year comparisons become more challenging next year.)

In 2019 we will learn whether the Tax Cuts and Jobs Act, which reduced the corporate income tax rate to 21% from 35%, was truly a stimulus for productivity-enhancing capital investment or merely a stimulus for profits.

Business fixed-investment did accelerate in the first half of 2018, rising 11.5% in the first quarter and 8.7% in the second, before reverting to a 2.5% increase in the third. A good chunk of the tax cut went to stock buybacks, which exceeded a record $1 trillion in 2018.

The U.S. economy, meanwhile, is not sending out alarm bells just yet.

Available data point to an economy still operating near full employment. At 3.7%, the civilian unemployment rate sits at a 49-year low. Wages are finally rising at a 3% rate for the first time since the Great Recession. And consumers opened their wallets during the Christmas shopping season. The 5.1% increase in holiday sales was the biggest in the last six years, according to Mastercard SpendingPulse.

That doesn’t mean the economic outlook is without risks. The sharp widening in credit spreads over the last three months, both high-yield and investment grade, seems to be mirroring the stress in the stock market.

Housing, which has been a reluctant participant throughout this business cycle after overplaying its hand in the previous one, has peaked. Yet even at the high point for single-family housing starts earlier this year, builders were breaking ground on new homes at rates that paled in comparison to those of previous expansions over the last half century.

Global synchronized growth has turned to a synchronized slowdown, which means reduced demand for U.S. goods and services. Still, the overall decline in industrial commodity prices has been less scary than the dive in energy prices since October.

The geopolitical situation is replete with opportunities for disruption and chaos.

A trade war with China remains a distinct possibility. The terms of the U.K.’s exit from the European Union, or Brexit, have yet to be determined. France is dealing with anti-government street protests, triggered by an announced fuel tax, since abandoned, and a push for a higher minimum wage. Italy and the European Union, which were at loggerheads over Italy’s budget, have come to some kind of an agreement that will allow Europe’s fourth-largest economy to avoid sanctions for now.

In short, the liberal world order created after World War II and the institutions created to promote democratic ideals and international trade and prevent another outbreak of hostilities is being threatened by nationalist and populist movements across the globe.

The effect of any, or all, or these developments has the potential to rattle the stock market and disrupt the economic expansion. But none is as easy to identify as our own domestic provocateur, the Fed.

One of the many reasons cited for the stock market’s recent jitters was the Fed’s Dec. 19 rate increase and projections for additional hikes next year, along with continue balance sheet reduction.

While the stock market was having a hissy fit, over in the fixed-income market, federal funds futures pretty much removed the likelihood of any additional rate hikes in 2019. And if there is one thing that Fed policy makers’ pay attention, even cater, to, it is market expectations.

Based on the December 2019 fed funds futures contract, the market is placing a greater probability on a rate cut than a rate hike by the end of the year.

If the Fed defers to the market’s “forecast,” as it did in 2016, then it could engineer one of the rare soft landings in central bank history.

If, instead, the Fed persists is raising the funds rate to the point that it exceeds the yield on the 10-year Treasury note, a recession would be the likely outcome. The average lead time for the term spread at business-cycle peaks — that is, the time between inversion and onset of recession — is 13.5-14 months, according to the Conference Board, the proprietor of the Index of Leading Economic Indicators, of which the term spread is first among equals.

The stock market seems more concerned about what the Fed says. I, for one, am content to wear earplugs but plan to monitor closely what policy makers do with the funds rate relative to the long-term rate.

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