2018 Equity Market Review

2018 was not a good year for the stock market. Since the beginning of the year, the Dow Jones Industrial Average has lost about 10 percent of its value, as did the S&P 500. The Nasdaq dropped roughly 8 percent. Worldwide stock markets including Europe and Emerging markets also have suffered losses in 2018. The Shanghai Stock Exchange has lost a quarter of its value so far this year.

The stock market woes come despite signs that the general economy is still doing well — with record low unemployment, strong GDP growth and relatively low inflation in the USA. But this year a number of other factors outweighed those positive economic indicators. President Donald Trump’s trade war with China, the slowdown in global economic growth and concern that the Federal Reserve was raising interest rates too quickly all contributed to a pessimistic reaction from the stock market. The federal government shutdown that began early Saturday has only added to the anxiety.

The year 2018 was among four calendar years in modern history when stocks and bonds both trailed cash. Some people warn there’s nowhere to hide. Yet following all rolling 12-month stretches when cash beat stocks and bonds, stocks’ average return over the next 12 months was 15.7 percent, with a 75.9 percent frequency of gains.

Also on positive side, following all negative years since 1926, the next year has averaged 12.4 percent. Pretty much every major house on the Wall Street sees the market higher in the year ahead, despite the brutal correction and potential bear market that looms over investors as 2018 comes to a tumultuous close.

We recommend investors to have a long-term strategy that gives them discipline in markets like we saw in 2018.

As Warren Buffett famously preached: Be greedy when others are fearful and fearful when others are greedy. Now it’s time for greed

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