The Year 2018 in Review: A Mountain of Question Marks

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Monday, December 31, 2018

On this, the final trading day of 2018 – easily the most crazily volatile year for the stock market in recent years – pre-market futures are in the green. There is no economic data to speak of ahead the opening bell; most of this good feeling comes from investors seeing value on the playing field after nearly two months of crashing index bottoms, as well as a news report (and accompanying presidential tweet) about a phone conversation between Presidents Trump and Xi indicating “big progress” in trade talks between the U.S. and China.

There’s no replacing an actual trade deal signed by both sides, but we do not expect anything this concrete until closer to the end of the “cease fire” treaty between the two countries that push the extension of tariffs on trade goods to around March 1st of next year. Taking officials’ word for major developments tend to have a boomerang effect once those words prove light on the merits.

Technically, 2018 was less volatile than 2015, which reportedly had more 1% intraday trading swings on the S&P 500 than 2018 did. You may recall 2015 as the year when oil prices continued their nasty dive begun the previous year, generating fears of a recessionary environment re-entering the market, with the cataclysm of 2008’s market crash still fresh in many investors’ minds.

This year brought a huge corporate tax cut, which helped send markets soaring to all-time highs, only to be followed by interest rates ratcheting up by the Federal Reserve to sop up the threat of inflation entering the economy. Added to this was the sabre-rattling of a trade war turned into an active tariff battle between the top two economies in the world, for which many investors had not properly prepared during the historic run-ups in market values. As a result, we saw no fewer than five separate trading days that moved markets intra-day 4% or more in the past year.

Even as the U.S. economy enjoys steady and robust employment levels – for which we’ll see new private-sector, non-farm payroll and Unemployment Rate numbers later this week (these reports are not expected to be affected by a partial government shutdown) – and healthy consumer confidence, as seen by recent holiday shopping figures, market indexes are seeing mounting question marks on the horizon for 2019. Slowing global growth, capped most recently by disappointing numbers in Chinese manufacturing, joins mounting tensions between the White House and the incoming Congress following November’s midterm election results as issues the market needs to grapple with.

The Fed looks to have cooled its heels a bit on its rate-hike outlook for 2019; after four quarter-point raises added a full percentage point in the Fed funds rate in 2018, expectations have now dwindled for new quarter-point hikes – in some cases to zero through the next 12 months. Of course, Fed Chair Jay Powell and his associates will continue to be “data dependent” on any future interest rate decisions. Currently, we’re at a 2.25-2.50% range; previously, 3% was held as the preferred benchmark to help the Fed’s dual mandate of full employment and controlled inflation. Whether we get to 3% a year from now is most certainly in question.

The worst performer on the Dow Jones index this year was Goldman Sachs GS , the high-end Wall Street investment staple. After beating Q3 earnings back in mid-October, the stock have hived off roughly $60 per share. Does this mean the firm is oversold and presents a buying opportunity? The current Zacks Rank is #3 (Hold), with a Zacks Style Score (Value – Growth – Momentum) of F. So the answer, at least in the short-term, is either “no” or merely “not yet.”

Our Zacks family wishes all of our readers, subscribers and members a very happy and prosperous new year! The Ahead of Wall Street column returns Wednesday, after observing New Years Day tomorrow.

Mark Vickery

Senior Editor

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