AH, so this year in the markets was INTERESTING. what with Trump bashing the Fed via Twitter on an almost daily basis, to trade tensions between China and the U.S, the U.S’s and China’s slowing economy, Congress probing and questioning plenty of large tech companies, volatility everywhere, a correction AND a bear market in the same year… 2018 in the stock market was enticing.
The way this will work, I breakdown the major news in each fiscal quarter and towards the end talk about 2019. Sound good? Great, let’s go
1st quarter (January - March)
The first trading sessions of 2018 were phenomenal, the S&P rose almost 6.6% in January, everyone was optimistic that the 2017 rally would continue in 2018. That was until we entered February. In the first week of February the S&P was down -4% YTD. Entering into correction territory in less than 5 trading sessions.
It was numbers and plunges that have not been seen since 2008. With the Dow falling almost -3,200 points or -12%. Reason? Fears of an overheating economy, wages were reported to be up by 2.9% just enough to cause investors to believe inflation will spiral out of control and the Fed having to take action and raise interest rates. But this correction was bound to happen since 2017 went by without a correction.
What boggles my mind is that the recovery also happened within February in terms of reaching a positive return Year To Date, ending at almost 3% YTD.
During the middle of March, equities slipped into the negative again, however, not passing the last low from February. It was due to tariff talks and threats between the U.S and China, tech was in the spotlight what with Facebook having data breached, Tesla was being criticized over their self-driving cars causing accidents, and backlash towards Amazon from the president.
Now, keep in mind, tech weighs heavily over the S&P, and so when giants such as Facebook and Amazon get sold off, the whole damn market falls as well as their giant tech pals (Apple, Google, and Netflix.)
2nd Quarter (April - June)
The Fed rose interest rates in April, the 10-year U.S treasury peaked 3% in April, causing more volatility in the markets. Lastly, more trade tensions were at play in April.
Volatility lessens in May, suddenly we see a large upswing in our markets. Mainly due to the fact that wage growth was weak, making investors believe the Fed was not going to hike interest rates. Pushing us back into a positive territory for the year. Late May, Trump placed tariffs on European nations, Canada, and Mexico. Lastly, political uncertainty in Italy caused a ripple is U.S markets.
June ended up being flat. The Fed rose interest rates yet again. And again, we still had trade war fears among other nations.
3rd quarter (July - September)
In the 3rd quarter of the fiscal year, equities took off. Making it one of the best quarters it has had in years, raising almost 7.2% in the span of 3 months.
Tariff threats were in the back burner in July, as for the most part, we heard positive news and optimistic outcomes on trade between the U.S and EU. More news on Facebook arose dropping Facebook’s share price -19% in a single trading session. It was due to future revenue outlook for Facebook.
August comes around and the rally that was seen in July continued. Pushing for a new high for equities. Apple was making headlines when it reached a $1 trillion market capitalization. With Amazon coming in second. The only issue seen during this month was Turkey’s financial crisis.
September pushed the markets into a new high, however, it wasn’t a large rally like we’ve seen in July and August. September was flat for the most part. As usual, the U.S threatened other nations with tariffs making markets volatile. Lastly, the Fed raised interest rates once again.
The communications sector was re balanced, placing the three largest telecom companies with other media stocks such as Facebook, Activision Blizzard, Disney, Netflix all bundled up into a brand new sector.
4th quarter (October - December)
All was well in the markets until our good friend volatility came back and was back violently into the 4th quarter. There was, you guessed it, more trade tensions. Furthermore, large companies start to feel the burn from these tariffs that they reported earnings that were slightly below estimates or in line with estimates. These companies further cited a weaker outlook or peak corporate earnings. To name a few, Amazon and Caterpillar were a few companies who mentioned weaker/peak outlooks. Lastly, investors felt some concern over the Fed raising interest rates again.
The market tanked -12% in October, making this the second correction of 2018, however, it attempted to recover in the last few trading sessions in October. With a very small positive return for the year.
Enter, U.S elections. who did not have much effect on the markets one bit, futures temporarily dipped, but soon recovered in little time.
However, there was more news on the Fed and their stance at raising interest rates in the future. Which also had investors flee equities in November. As for the trade war, there was a cease fire between China and the U.S nearing the end of November, they wanted to come to an agreement in terms of their trade.
Enter, December, which gave us thus far the most volatile month we’ve had all of 2018. The worst December decline since The Great Depression. It pushed all major indices into a bear market. About 280 stocks listed on the S&P 500 all entered bear territory towards the end of December.
Future outlook for 2019
As of now, investors aren’t entirely optimistic of 2019, what with concerns over inflation going out of control, the Fed raising rates, trade war tensions, and peak corporate profits.
With that said, there will be more volatility in the markets, sooner or later fluctuations like we’ve been having will be normal. In turn, the markets will return small percentages over the next few years, until we enter a severe bear market that goes on for 6 - 12 months, or more, and wipe out 30 - 50% in equities. In terms of the state of the economy, productivity will peak, and experts say there is a potential economic slowdown. However, not all is bad as unemployment is at a 41 year low, wages are stagnant, and the overall economy is doing good. It’s up to the Fed to take us on the correct path to a continuing successful macro environment.