Market Monitor: December 2018 Update

Twice a month, we send clients this overview of the markets and roundup of key economic news stories. Similar to Altair Insight, it enables us to share our big-picture views while also highlighting select market returns and developments that we feel are important.

Headlines and Highlights
  • December was worst month for stocks since the global financial crisis: U.S. stocks saw their biggest monthly decline since February 2009 as investors worried about a global economic slowdown, U.S.-China trade issues, tightening monetary policy and a government shutdown. Despite a month-end rally, the S&P 500 fell 9 percent in December and 4.6 percent for the year, finishing 14.5 percent off the September 20th all-time high. Internationally, developed stocks lost 13.7 percent in 2018 and emerging-market stocks finished down 15.3 percent.
  • Jobs report underscores labor market’s strength: U.S. employers last month added the most jobs (312,000) since February as wage growth accelerated and labor-force participation expanded. It was the latest evidence of a robust economy despite market fears of waning growth. Unemployment crept up to 3.9 percent as more workers entered the labor force.
  • Trade war hits China manufacturing, consumers: China’s manufacturing sector contracted for the first time in 2½ years last month, according to Beijing. The nearly year-long trade dispute with the United States appears to be damaging the country’s all-important export manufacturing industries. Chinese consumers have pulled back their spending as their economy decelerated; Apple warned of a sharp drop-off in iPhone sales in China, sending its share price sharply lower and contributing to a stumbling start for the stock market in January. China watchers expect more stimulus spending by the government.
Selected Market Returns

market monitor

Source: Morningstar, Altair Advisers
Key Takeaways
  • U.S. economic data remain mostly promising and the likelihood of a recession in 2019 appears low. The labor market ended the year on an upswing and holiday retail sales saw their biggest increase since at least 2012. On the down side, consumer confidence dipped in December and U.S. manufacturers expanded at the slowest pace in 15 months as business confidence declined.
  • 2018 ended with volatility on the upswing after years of comparative calm, a trend that has carried over into early 2019. The CBOE Volatility Index registered its steepest one-year increase ever last year. There were 16 trading days when the S&P 500 fell by at least 2 percent, compared to five such up days; in 2017 the index never moved 2 percent in either direction.
  • The bull market in U.S. stocks remains technically alive, even if investors have been less than bullish lately. The S&P 500’s fall reached 19.8 percent from the peak at its nadir on Christmas Eve, narrowly avoiding the 20 percent drop (based on daily closing prices) that is widely considered to signify the end of a bull market and the beginning of a bear market.
  • Oil prices fell 25 percent for all of 2018 and saw their first decline in three years. The price of U.S. crude sank 41 percent from its October 3rd peak of $76.41 a barrel to $45.41 at year’s end.
  • Markets now anticipate the Federal Reserve will not raise interest rates this year, a change from the consensus estimate before the December sell-off of one to two additional rate rises. Sixty-five percent of traders foresee the Fed standing pat in 2019 while 30 percent think rates will be reduced and 5 percent anticipate one rate hike, according to the CME FedWatch.

The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice