Volatility Takes Center Stage

The fourth quarter of 2018, through December 26, has been a “bear”.  Despite a crazy record-breaking 1,000-point rally on the day after Christmas, preceded by a 600-point drop on Xmas eve, the S&P 500 still shows about a -6% total return loss on the year; with Q4 producing a -15% loss all by itself!

All major asset classes, not including cash, produced negative returns during 2018.  Emerging markets and international developed markets, the favorites of thought leaders for 2018, came in last at about -15%.  Small cap U.S. equities were down about -12%, REITs were down -7%, and even gold was down -3% (despite strong Q4 of +6%).  Bonds were least hurtful with broad bonds only slightly negative at -1%, but short Treasuries showed positive +1% returns.

Leading into the market open on December 27, futures point to a -1.5% retracement after the 1,000 point rally.  Expect more volatility into January as most portfolios get rebalanced back to targets after equity losses.  Selling bonds and buying equities, to get back onside, could prompt a pop in January, but underlying fundamentals should still lead the way.  We are watching the January 3 PMI (and LEI) for confirmation that the economy is still stable.


Tony Ash

December 27, 2018  8:40AM