As 2019 begins, we would like to reflect back to year 2018 and provide you with a year in review. 2018 was filled with drastic movements, both intraday and annually, reflecting a volatile market both in stocks and bonds. The equity markets experienced what I would call two (2) market retracement moments, one in the 1st quarter and one in the 4th quarter of 2018. Although the year started out on a positive note, The S&P Index start at 2,695.81 on January 2, then falling to 2,581.00 on February 8th, resulting in a -114.81 point loss or a -4.26% downward move.
The old saying of “Sell in May And Walk Away” really didn’t happen and we saw the S&P index experience a 349.75 upward move to an all-time high of 2,930.75 on September 20th, which reflects a 349.75 point gain, or a 7.38% rise.
Then the second correction came which ultimately saw the S&P Index move from its September 20th high of 2,930.75, closing on December 31st at 2,506.85, a -423.90 point loss or a -14.46% retraction to close out the year.
So what happened that we believe caused this volatility?
Several factors we believe caused and still remain concerns today:
- Trade Tariffs – The US and China are working on a resolution, but the market doesn’t like uncertainty and how these relations/tariffs will affect US Companies and global growth forecasts.
- Rising Interest Rates in 2018- Rate increases cause short-term volatility and uncertainty regarding future growth expectations, however, strong current data warrants these increases to account for the possibility of rising inflation. It is our opinion that the Fed also needs to “reload” the gun in the event of any future monetary stimulus due to a market downturn.
- Global growth forecasts lowering and the effects of Britain exiting the EURO Zone.
- US Currency not favorable for Emerging Markets.
- Oil Prices and Global Supply and Demand.
- Political games, both domestic & international. - Mid-terms created uncertainty as well.
We do hope that factors 1 & 2 will be resolved within the 1st quarter of 2019. Again, hopefully causing a calming effect within the United States as investors await earning season.
So, what happened in the Bond Markets?
In 2018, the 10 US Year Treasury Bond yield was at 2.47% yield on January 1st, then reaching a high on October 1st of 3.23% yield. The Federal Reserve raised the benchmark lending rates during this time and we believe the “Risk On” in the equity markets help make these moves possible. On December 31st, the 10 US Year Treasury Bond closed at a 2.67% yield. Nonetheless, volatility in the equity markets and the Federal Reserve’s action has caused any “Income Strategies” to be challenging. The Federal Reserve has indicated that they will take a "Wait & See Approach" and focus on the data points in determining any future (2019) rate increases.
As always, We you appreciate the chance to meet and discuss any investment ideas, account reviews, etc…….With you.
See you soon!
Christopher S. Pulos CRPC
Standard & Poors (S&P) data points taken from Yahoo Finance website.
US 10 Year Treasury Rate data points taken from Macrotrends website.
This article is meant to be general, and it is not investment or financial advice or a recommendation of any kind. The opinions and other information contained in this article are subject to change based on market or other conditions. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Actual results could differ materially from those anticipated in forward-looking statements. Please consult your financial advisor before making financial decisions.
The S&P 500 index is unmanaged and cannot be directly invested into. Past performance does not guarantee future results.