Wall Street stocks have officially ended their worst year since the 2008 financial crisis.
2018 has set a record for the worst year for stocks in a decade, following a late-season collapse that’s likely to roll into 2019.
Major U.S. indexes ended the year making modest gains but still in the red on Monday with the S&P 500 down 6.2 percent, the Dow Jones Industrial Average 5.6 percent, and the Nasdaq down 4 percent.
December was a hard month for the market with the S&P 500 down 9 percent and the Dow down 8.7 percent, marking the worst December since 1931.
The year started off on a good foot after President Donald Trump signed off on sweeping tax cuts in December 2017, but quickly turned volatile afterwards.
The Dow surged above 25,000 for the first time and then hit 26,000 less than two weeks later.
The market began to decline as a result of global economic slowdown and following Trump’s unpredictable international stances which has led to unease over a series of trade wars, particularly with China.
Rising interest rates and economists’ warning of slow growth and a possible recession also led to the economy’s decline towards the end of the year.
And the declines rapidly accelerated in the final weeks of 2018, erasing all the gains since January.
Concluding the year with losses is ‘astonishing,’ Manulife senior portfolio manager Nate Thooft told AFP. ‘From an investor perspective, it probably shakes them a bit.’
There was a spurt of renewed optimism on Monday, and the Dow Jones Industrial Average finished the final session with a gain of 1.2 percent at 23,327.46.
The broad-based S&P 500 climbed 0.9 percent to end at 2,506.85, while the tech-rich Nasdaq Composite Index advanced 0.8 percent to 6,635.28.
But even with Monday’s boost, the three indexes ended in the red.
That was after a year in which the indexes jumped 25.1 percent, 19.4 percent and 28.2 percent – before companies logged massive jumps in profits this year due in part to the tax cut.
But the market then began to wobble in late January just before Jerome Powell took over as Fed chairman of the Federal Reserve.
At the time, analysts cited worries the Fed would have to hike rates too aggressively.
The market decline continued on February 5 with the Dow plunging nearly 1,600 points at one stage before ending a grim session down more than four percent.
On March 1 Trump jumped into the mix by announcing tariffs on imported steel and aluminum. The following day on Twitter he proclaimed that ‘trade wars are good, and easy to win.’
Then he announced tariffs on China.
However many key US economic indicators stayed robust even as business leaders recoiled at Trump’s rising protectionism, with unemployment lingering at a 49-year low, corporate earnings notching their strongest growth in eight years, and business and consumer sentiment remaining well above historic trends.
In August, the S&P 500 celebrated the longest-ever ‘bull market,’ with 3,453 straight sessions — more than nine years — without a drop of 20 percent. In October, the Dow surged to an all-time high of 26,828.39.
After that milestone, the stocks began to decline.
Trump’s angst towards the Federal Reserve and brutal US-Chine trade talks and rising interest rates stopped the economic growth.
Market watchers are always nervous about Fed tightening cycles, especially as they reach their end, fearing they might overdo it, but Trump has dialed up the jitters with repeated attacks on Powell.
Economists warn that such criticism can easily backfire by compelling the US central bank to continue to raise interest rates to demonstrate its independence.
White House officials have denied Trump intends to fire Powell, but many market watchers say the possibility has further pressured stocks, especially given the president’s penchant for setting policy by tweet without consulting his advisors.
Then in December the federal government partially shut down in a battle over Trump’s $5billion border wall with Mexico.
Experts say that despite the difficult year for the market, people should not fear an impending financial crisis.
‘To be clear, the challenges we see ahead don’t look to us like the makings of another financial crisis,’ said a recent investor note by JPMorgan Private Bank said in a recent investor note.
‘Our base case assumes slowing growth in the US economy throughout 2019 and a moderate recession in 2020.’
Thooft of Manulife said the gloom of December feels ‘a bit overdone’ given that most data is still strong.
But he warned that investors are unnerved, and the sense of waning optimism could soon show up in consumer and business sentiment indexes.
‘You’re going to need more than one (positive) outcome” to push stocks higher in ‘2019, he said. ‘It’s probably bigger than just the trade issue.’
Written for and published by The Daily Mail ~ December 31, 2018.
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