2018 Year-End Market Review: Navigating Volatility & Potential Bear Market

Hello Readers – It has been an interesting close to 2018, to say the least. We have 1 more full trading day left in the year, and this may be the first year in recent memory where US stocks close out below where they started at the beginning of the year. Volatility has become much more common over the past several weeks, in stark contrast to relatively calmer past years. The S&P 500, an Index many commonly review, nearly crossed the ‘Bear’ market threshold, but stopped short on the way down.

Weekly Returns

S&P 500: 2,486 (2.8%)
FTSE All-World ex-US(VEU): (1.0%)
US 10 Year Treasury Yield: 2.72% (-2.58%)
Gold: $1,223 (2.2%)
EUR/USD: 1.144 (0.7%)

Major Events

• Monday – US markets react negatively to the government shutdown.
• Monday – Oil futures hit an 18 month low.
• Tuesday – Markets are closed for the Christmas Holiday.
• Wednesday – US markets rebound, posting strong gains for the day.
• Wednesday – President Trump makes his first visit to a combat zone to visit US troops.
• Thursday – US markets again post positive returns after weeks of declines.
• Friday – Wells Fargo announces another settlement related to its improper sales practices.

Our Take

Even with one less trading day this week, the markets didn’t miss an opportunity to surprise investors. There was little ‘new’ news this week to point to what caused the volatility. It is reasonable to say that continued uncertainty around the ebbs and flows of trade escalation between China and the US, as well as fears around a Fed that continues to message a less accommodative stance are likely significant contributors.

Interestingly, and as we mentioned in a recent communication to our clients, there seems to have been a shift in investor sentiment. Prior to October of this year, many individuals I personally interacted with were bullish on the markets and interested in putting more of their capital in high flying performers like large cap technology stocks. Fast forward to now, and many investors have become more cautious, if not outright fearful, of the current market environment.

If one is a contrarian investor, where you assume that when most people think one thing, that the opposite will happen, a shift in sentiment from positive to negative could in fact be a good thing. Only time will tell.

We wish all our clients, users, and readers a safe, and happy transition into the New Year.