A steep drop in investor sentiment, exacerbated by programmatic selling, sent stocks lower in December, resulting in deep losses across the major market indices.
The Dow Jones Industrial Average dropped 8.7 percent, and the Standard & Poor’s 500 Index fell 9.2 percent. The NASDAQ Composite declined 9.45 percent.1
The stock market opened the month higher on news from the G20 summit meeting that suggested trade tensions between the U.S. and China might be easing. But the enthusiasm was short-lived amid conflicting signals over the discussion between President Trump and Chinese President Xi.
As the month progressed, worries about the ongoing trade dispute and a global economic slowdown added to negative investor sentiment. With the month half over and hopes for a “Santa Claus Rally” fading, the stock market ignored positive developments, such as China’s steps to reduce trade tensions by announcing soybean purchases and lowering auto tariffs.
Stocks dropped further following the mid-December Federal Open Market Committee meeting in which policymakers raised short-term rates 0.25 percent. The markets struggled to manage expectations when Fed Chair Jerome Powell indicated the Fed was staying its course with two more potential hikes in short-term interest rates for 2019.
Holiday market action led to a breathtaking rollercoaster ride as the Dow lost over 600 points on Christmas Eve, then soared 1,000 points the day after and the S&P 500 ended the year lower. This was the first drop since 2008 for the S&P 500.2
Every industry sector retreated in December, with losses in Communication Services (-8.26 percent), Consumer Discretionary (-9.05 percent), Consumer Staples (-9.39 percent), Energy ( -13.30) Financials (-12.82 percent), Health Care (-8.97 percent), Industrials (-11.18 percent), Materials (-7.36 percent), Real Estate (-7.61 percent), Technology (-9.65 percent), and Utilities (-3.59 percent).3
What Investors May Be Talking About in January
The curtain will soon rise on the fourth-quarter earnings season, and the results are expected to impact investors’ outlook for 2019.
Wall Street estimates for 2019 are at a record high for S&P 500 companies.4 Despite this, some analysts have trimmed growth estimates for S&P 500 companies to 8.2 percent, down from 10.2 percent two months ago.5 Some analysts are forecasting more modest growth in the 3-4 percent range.6 Leading concerns are interest rates, the trade outlook, and global economic growth.
It’s uncertain if these recent trade deals will help negotiations with China. Some believe that the elimination of multiple parallel trade negotiations will benefit U.S. interests as the economic impact of tariffs begin to weigh on China’s economy.
Overseas equities suffered smaller declines than those experienced by U.S. stocks, with the MSCI-EAFE Index sliding 5.4 percent.7
Trade tensions, political uncertainty, and economic weakness drove broad declines in France, Germany, and the U.K.8.
Pacific Rim markets were generally more resilient, with smaller losses in Australia and Hong Kong. Japan was among the weakest of the major international markets, losing 10.5 percent in December.9
Gross Domestic Product
Third-quarter economic growth was revised slightly lower, from 3.5 percent to 3.4 percent.10
The labor market remained strong, adding 155,000 nonfarm jobs in November and keeping the unemployment rate unchanged at 3.7 percent. Year-over-year wage growth came in at 3.1 percent, a growth rate that matched last month’s 12-month increase.11
Retail sales rose 0.2 percent from the prior month and 4.2 percent higher from November of last year.12
Aided by a jump in utility usage due to a frigid month, industrial production picked up 0.6 percent. Output at U.S. factories was flat.13
Housing starts increased 3.2 percent in November. Year-to-date, housing starts are up by 5.1 percent vs. the first 11 months of last year.14
Purchases of new homes fell 5.5 percent in September. Sales through the first nine months are modestly higher, up 3.5 percent, compared to the same period in 2017.15
Existing homes sales fell 3.4 percent, as lower inventory, higher mortgage rates, and reduced tax benefits of homeownership continued to weigh on the housing market.
Consumer Price Index
The price of consumer goods was flat from the previous month, due primarily to a broad decline in oil prices. Core inflation — not including the more volatile food and energy categories — rose 0.2 percent.16
Durable Goods Orders
Orders for long-lasting goods rose 0.8 percent, but a jump in aircraft orders offset weaknesses in other manufacturing sectors.17
At the conclusion of its two-day meeting on December 19, the Fed unanimously elected to raise the federal funds rate by 0.25 percent.
This signaled that Fed Chair Powell was staying his proposed course, bringing caution to investors and stocks to drop as news broke of two more potential short-term interest rate hikes in 2019.
Finally, the Fed’s economic outlook was revised with expectations of some slowdown in economic growth and less inflation.18
By the Numbers
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
Any companies mentioned are for illustrative purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance.
The forecasts or forward-looking statements are based on assumptions, may not materialize and are subject to revision without notice.
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
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1. The Wall Street Journal, December 31, 2018
2. New York University, Stern School of Business, December 31, 2018
3. FactSet Research Systems, Inc., December 31, 2018
4. FactSet Research Systems, Inc., December 7, 2018
5. Reuters, December 10, 2018
6. Reuters, December 10, 2018
7. MSCI.com, November 30, 2018
8. MSCI.com, November 30, 2018
9. MSCI.com, November 30, 2018
10. The Wall Street Journal December 7, 2018
11. The Wall Street Journal, December 14, 2018
12. The Wall Street Journal, December 14, 2018
13. The Wall Street Journal, December 18, 2018
14. The Wall Street Journal, December 19, 2018
15. The Wall Street Journal, December 12, 2018
16. The Wall Street Journal, December 21, 2018
17. The Wall Street Journal, December 19, 2018
18. U.S. Department of Agriculture, December 2018
19. Statista.com, 2017
20. Bureau of Labor Statistics, April 26, 2018
21. SmartAsset.com, May 15, 2018. Figure for lifetime earnings assumes average income over the course of 42 working years.
22. PewResearch.org, June 13, 2018
23. StatisticBrain.com, June 16, 2018
24. The Washington Post, September 6, 2017
25. USAToday.com, September 5, 2017