Q4 2018 Market Review & 2019 Economic Outlook - Analysis & Insights

Q4 2018 Market Performance and 2019 Outlook

Q4 Market Performance

In the fourth quarter of 2018, global equities fell 13% and on Christmas day were down 20% from the high last January. The US was hit hardest, especially high momentum tech stocks.

On the positive side, unemployment hovers around all-time lows, profits are at all-time highs and growing, and inflation remains in check. On the other hand, the housing market is softening in terms of volume and price and oil prices have plummeted.

For investors with more equally weighted sectors, it came as good news that defensive sectors like Utilities and Consumer Staples outperformed this quarter. In addition, bonds were up a little which also mitigated losses in equities . For the most part, investors with diversified portfolios fared better than those who had continued to bet on tech and other popular equity sectors.

Overall, while it was a challenging year for investors with no major asset classes producing meaningful gains.

2019 Outlook

With US-China tensions, an uncertain interest rate environment, and some big losses in the tech sector, the past few months have left investors wondering: what’s next?

For 2019 in general, our outlook is balanced. If anything, declines make stocks attractive than they were a few months ago. Valuations are now mixed. The forward price to earnings on the S&P 500 looks compelling compared to current interest rates but based on other metrics like price to sales and overall equity values compared to GDP stocks remain expensive.

There’s no way to know where markets will go from here in 2019, but investors should remember that periods like we experienced in the fourth quarter of 2018 are a normal part of how stocks move higher over full cycles.

Market Volatility

What to make of the recent market volatility?

The recent correction, which came very close to the technical definition of a bear market, has made many more fearful of the market, but from a valuation perspective stocks are now cheaper than they were in the summer months.

Eventually, the bull market will end. The interest rate environment has become a bigger headwind, as has trade conflict and the escalating turmoil around Brexit.