With all of the recent uncertainty in the marketplace here in Dallas, TX, it might makes sense to look back at what happened in 2018 to gain some perspective.
Case Study: The Market Volatility in the Fourth Quarter of 2018
When stock prices pull back, the process reminds us of a reality we don’t like to think about: stock prices can’t always go up.
Let’s take a closer look at 2018, which was the last time we saw the market fluctuate. The passage of President Trump’s Tax Cuts and Jobs Act in late 2017 helped bolster optimism and was widely credited for the market surges, as corporate executives expressed renewed interest to invest in their companies and workforces.
Most indicators painted a picture of a very vibrant economy and relatively robust growth. On the labor side, the unemployment rate was improving. Growth in wages and jobs also added to the rosy economic outlook.5
Market volatility picked up in September 2018. With the month coming to an end, the Fed announced a 0.25% hike in the federal funds rate and raised the potential for an additional hike before the end of the year. Though the hike was telegraphed to investors, markets trended lower following the news.
Stocks dropped further in mid-December once policymakers raised short-term rates again. The markets struggled to manage expectations when the Fed said that it was staying the course with two more potential hikes in short-term interest rates for 2019.5
Holiday market action led to a breathtaking rollercoaster ride, as the Dow lost over 600 points on Christmas Eve, then rose 1,000 points the day after Christmas, and the S&P 500 ended the year lower.6 By January 2019, worries about the ongoing trade dispute and a global economic slowdown added to negative investor sentiment.
However, stocks quickly found firmer footing on news that the China trade talks would restart. Investor spirits were further buoyed when the Fed said that it would be flexible with its policies.
The views stated in this piece are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. The S&P 500 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.