Last week, domestic markets had some of their worst performance in 10 years. The S&P 500 lost 7.05%, the Dow declined 6.87%, and the NASDAQ dropped 8.36%. All three indexes have now lost at least 8% in 2018. On Friday, December 21, the NASDAQ entered a bear market, which means it's at least 20% below its last record high. Meanwhile, the S&P 500 and Dow both finished the week close to bear markets, too. Internationally, stocks in the MSCI EAFE also struggled, posting a 2.67% weekly loss.
What happened to the markets?
Last week brought a number of economic updates, which gave mixed signals on the economy:
- Consumer spending increased in November.
- Business spending slowed down.
- Economic growth in the 3rd quarter slightly missed projections.
However, markets hardly focused on the data. Instead, two key headlines drove the week's performance: 1) results from the Fed's latest meeting and 2) the risk of a government shutdown.
Let's look a bit more into what happened - and how the markets reacted.
1. The Federal Reserve increased rates and shared its economic projections.
Markets expected the Fed's 4th interest rate increase for the year. In many ways, traders were trying to read between the lines of every Fed announcement last week to see how sensitive the agency would be to the markets. As a result, investors became concerned about the Fed's statements that increases could continue in 2019, despite seeing a slowdown in economic growth. This reaction caused some of the sell-offs.
2. A government shutdown loomed - and then happened.
A disagreement between Congress and President Trump about government funding for a border wall continued throughout last week. While a deal had seemed imminent, by Friday afternoon, the political divide continued and a shutdown loomed. Stocks dropped significantly as a result. By Saturday morning, 9 of the 15 federal departments had closed due to the shutdown.
What should you do?
These challenging moments are when keeping perspective is most important. Sell-offs and uncertainty can feel worrisome - and we cannot say for sure how long this market turbulence will continue.
In the weeks ahead, the government shutdown may continue, and we may not experience the strong "Santa rally" that investors hoped for. However, it's important to remember that, historically, shutdowns are short and don't typically create negative long-term effects on the economy.
However, when thinking about the current environment, we want to encourage you to consider airline turbulence: During a flight, turbulence can feel unsettling and downright scary. But, you don't jump out of the plane just because it's shaking. While you may worry about a crash, the pilots are using every available data point, measurement, and expert to find the safest path to your destination. The unpleasantness almost always calms - and you arrive where you intended to go.
In this same manner, we're tracking this current turbulence and how it relates to you. No matter what lies ahead, we're here to pilot you through. If you want to discuss specifics about our economy, your goals, and current momentum, please contact us. We're always ready to help you understand your financial life.
Monday: NYSE Early Close
Tuesday: Markets Closed for Christmas Day
Thursday: New Home Sales, Consumer Confidence, Jobless Claims
Friday: Pending Home Sales Index
Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
These are the views of 4th River Financial Group, and not necessarily those of the named representative, and should not be construed as investment advice. Neither the named representative nor the Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Diversification does not guarantee profit nor is it guaranteed to protect assets.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.
The S&P US Investment Grade Corporate Bond Index contains US- and foreign issued investment grade corporate bonds denominated in US dollars. The SPUSCIG launched on April 9, 2013. All information for an index prior to its launch date is back teased, based on the methodology that was in effect on the launch date. Back-tested performance, which is hypothetical and not actual performance, is subject to inherent limitations because it reflects application of an Index methodology and selection of index constituents in hindsight. No theoretical approach can take into account all of the factors in the markets in general and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back tested returns.
The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Google Finance is the source for any reference to the performance of an index between two specific periods.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
You cannot invest directly in an index.
Consult your financial professional before making any investment decision.
Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
By clicking on these links, you will leave our server, as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.