Weekly market update
Plain and simple, the first half of December has been awful. Normally one of the strongest months of the year, the S&P 500 has dropped over 5% so far this month putting it on pace to be one of the worst Decembers in the post WWII period. Looking back over the last 25 years or so, it hasn’t been uncommon to see weakness in the first half of December, but not declines of 5% or more! Going back to 1945, there have only been two other months where the S&P 500 was down at least 5% at the close on 12/14—1980 (-8.03%) and 2002 (-5.00%). All three major U.S. indexes closed in correction territory Friday for the first time since March 2016. The S&P 500 has been officially in a correction since October. Analysts generally define a correction as a 10% drop from the high. Once that number hits 20%, the correction turns into a bear.
Forty-eight percent of the S&P 500 stocks are more than 20% below their 52-week high. The highest amount since the 2016 and 2011 declines. The Dow, S&P 500 and NASDAQ are all in correction territory.
I see people in the markets getting excited about a 1-2-hour rally, if they last more than a day, I will take notice.
The latest economic data from China offered yet another hint that their economy may be decelerating amid rising trade risks as President Xi Jinping tries to broker a permanent truce with President Donald Trump. The two nations have added tariffs on billions of dollars’ worth of goods over the past year as disagreements over the handling of intellectual property and a trade deficit pit the world’s two largest economies against each other. This will drag into 2019 and the markets DON’T like it.
Moreover, investors are also on edge ahead of the December meeting of the FED’s policymaking arm. The Federal Open Market Committee is expected to hike its benchmark overnight lending rate for a fourth and final time of 2018 this week. While fears of rising interest rates and an ambitious FED have spooked markets throughout 2018, such concerns have evolved over the past month as inflation and growth expectations recede. Many are now saying a December hike could be bad for stocks, the economy and growth expectations.
So, tariffs, the FED and growth expectations have taken their toll—and now we face a government shutdown? Mr. Market is not going to like it. Although stocks have been positive the last five shutdowns.
Across the pond, the European region is limping into 2019 with Brexit negotiations stalled and budget problems for Italy and France. And last week, we heard from the European Central Bank. Here are the highlights:
- Lower growth forecasts.
- Lower inflation expectations.
- Push out of rate hike forecast.
And the really big one…
QE taper delayed!
Well, this is my last market update for 2018, but I will be updating you in the first week of 2019. I wish all of you a Merry Christmas and Happy New Year, and please be safe in your travels!
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
December 17, 2018
