Traders have had a tough year on the stock market. photo / Getty Images.
U.S. markets were poised to cut 2018 losses in a rally on Monday, but not enough to prevent the worst annual drop in stocks since 2008.
The three main clues followed to end 2018 in the red in the final of a tumultuous year. The Jones Industrial Average and S&P 500 were heading for annual declines of around 6% each. The tech-rich Nasdaq Composite traded more than 4% in negative territory during the year.
Monday’s first gains came when reports surfaced that the Trump administration and China were making progress in trade talks. But the surge faded over the course of the afternoon as a wide range of concerns remain, including a grim report on China’s manufacturing sector, slowing global economic growth, rising rates. US interest and a worrying drop in oil prices.
“Markets have been troubled throughout the year and damaged by the trade war and the apparent economic downturn,” said John Kilduff of Again Capital. “This was reinforced last night with Chinese manufacturing figures showing a contraction.”
China’s manufacturing sector contracted for the first time in two and a half years in December, according to a Chinese government report released on Monday.
China’s slowdown could be linked to Trump’s trade war. The result is a declining outlook for the global economy.
December was a difficult month for the markets, with all three indices falling 9% as the Federal Reserve continued to tighten money supply with a quarterly increase in interest rates.
Nine of eleven US sectors were in negative territory heading into Monday’s session. The energy and materials sectors led the decline. Energy companies were hampered by a 25% drop in oil prices in 2018 due to a glut of supply.
Only two sectors – health and public services – were positive for the year.
“Global stock markets need a strong Chinese economy, and it is faltering,” Kilduff said. “This is weighing heavily on oil and will continue to weigh on stocks into the new year.”
2018 will be remembered by Wall Street analysts for the return of volatility, which returned to the markets after a remarkably quiet 2017.
“While volatility is paltry compared to during the 2008-2009 recession, we had grown used to significantly lower volatility in 2017,” said Howard Silverblatt of S&P Dow Jones Indices.
Intra-day fluctuations in stock prices are a measure of market volatility. According to this measure, 2018 saw 110 market swings of 1% in the S&P, up from just 10 in 2017. This is still 35% below the average of 169 intraday market swings of 1% from 1962 to present. ‘hui.
The year began with a sharp drop in February when Trump signaled his intention to impose tariffs on products ranging from solar panels to washing machines imported into the United States.
The market eventually adjusted to Trump’s tweets and business threats, helped by strong corporate earnings and a tax cut. Stocks hit record highs in early fall.
The market then reversed in the past three months when Federal Reserve Chairman Jerome Powell said the central bank embarked on a series of hikes to normalize interest rates.
The three-month drop included a dramatic drop in so-called FAANG stocks – Facebook, Amazon, Apple, Netflix and Google’s parent Alphabet – and culminated in the worst stock market crash in Christmas Eve history.
The Christmas Eve crash follows phone calls from Treasury Secretary Steven Mnuchin to major US banks. Instead of calming the markets, the unorthodox phone calls worried investors and the Dow fell 653 points, or just under 3%.
When markets opened on December 26, the Nasdaq was deeply in bearish market territory and the S&P was right behind. Bear markets are typically measured as a 20% pullback from recent highs. All three indices have come down in a correction, which represents a decline of 10 percent.
On December 26, the Dow Jones rallied 1,086 points, its biggest point gain in history, as volatility resumed.
Sam Stovall of CFRA said people should get used to the turbulence.
“Volatility has returned to normal,” said Stovall, CFRA’s chief investment strategist. “We were spoiled in 2017. Interest rates remained relatively low, economic growth was strong, and investors were buying stocks in anticipation of the tax cut at the end of 2017.”
The economy is expected to end 2018 with an annual growth rate of around 3%, which some economists did not believe was possible. The expected growth rate in 2019 is between 2 and 2.5%.
– Washington Post