What happened in 2018.
As I wrote in some of my previous commentaries the beginning of 2018 was a continuation of strength from the previous year. January and February started out strong and then the psychology of the market changed.
History has shown us that markets very often will be overdone on the upside and on the downside and 2018 was certainly an example of that. After a strong 2017 it should not have been a surprise that in 2018 especially with all of the noise in Washington and the friction with China and the tariffs that the market would be a little nervous and look to reevaluate whether we could continue at that pace. It also didn’t help that in the beginning of October the head of the federal reserve indicated that we could have multiple rate hikes next year even though the economy was starting to show signs of slowing down. Coupled with the lack of progress in the China trade talks the market started a decline of almost 20% from it’s high this year. While that was a staggering number by the end of the year the S&P 500 was down about 7%. But 2018 wasn’t just a difficult year for US equities, it was difficult for markets all around the world, with virtually nowhere to hide. Of the 75 different asset classes that Duetsche Bank follows, 93% had negative performance in 2018. That was the highest number since before 1900 when this data was tracked.
My thoughts are that in 2019 we will undoubtedly see a slowdown in the economy from the previous year, but our economy is still relatively strong and interest rates are still relatively low. I also do not see interest rates going much higher, we could have seen the last hike in this economic cycle which would be good news for the markets. Barring any serious unforeseen events that should give the financial markets some confidence to move forward in 2019. The situation in Washington is obviously a problem going forward but with now having a split government that should give us some balance.
Financial markets are never easy to navigate but I think that it is critical to focus on the fundamentals and on our long-term investment goals.
I hope that this has been helpful.