*The following is part of a quarterly review sent to clients
October 1st Through December 31st, 2018
The 4th Quarter of 2018 was indeed the worst end of a year since the 2008 financial crisis. Counter-intuitively, this selloff in world markets did not reflect what was going on in the US economy; but there’s no denying it happened, and it was quite a volatile ride.
As of Today, there is no GDP report for the 4th Quarter 2018, as the government shut down effected compiling some numbers. However, Today, We did get the January Jobs Report, Which showed a significant gain in Jobs for the month of 304,000. Much higher than expected; it may be the case that the shutdown had little effect on the overall economy.
During the fourth quarter 2018, there were several big news stories that had some effect on markets including the US midterm elections, which brought the prospect of divided government. The Fed rate Hike in December made for significant turbulence in stocks; many thought this was the wrong time to continue rate hikes, and Chairman Powell’s comments on being aggressive were not taken well either.
The market began selling off in late September, and kept declining through October and November, before really Accelerating in December. The lows were hit on December 24th.
For the Quarter, Bonds were one of the few bright spots, with Global Bonds increasing more than 1%. Other sectors were not so lucky. Real Estate declined by 6.6%, Emerging Markets by 7.5%, and Developed countries outside the US declined by 12.8%. In the US, the S&P 500 was down 13.5%, while Small cap declined over 20%. Other sectors faired a lot worse. Energy got hammered, with WTI Crude down 38% in the quarter; although this was good for consumers.
So Far in 2019, we have seen a sharp rebound. So, what was the selloff about? Was it investor overreaction? Was it simply a big correction since markets had gone so high so quickly? Was a foreshadowing of Recession in late 2019? We cant be sure; but for now, we know as of the end of 2018, the US economy is the strongest it’s been since 2006. While growth may slow, most experts still think that there will be a continued expansion for as far as can be forecast.