December 2018 Market Commentary

In December the US market finally caved and joined the global markets with the worst December in over 86 years. The S&P fell 9% during the month, dropping 23% from its high in late August, returning -4.38% for the year in US dollars. With the help of a falling Canadian dollar, the S&P in Canadian dollars remained positive for the year at 3.76%. The TSX while fared a little better during the month falling 5.40%, it finished the year – 8.89% after falling 17% from its intra year high reach in mid-July.  Most global markets were in negative territory for the month with the MSCI World index falling 7.57% for the month and was – 8.20% for the year. In CDN terms the MSCI World index was flat for the year, returning .06%. Asia was negative for the month and for the year with most indices falling double digits, lead by China’s Shenzhen and Shanghai indices down a whopping -33.26% and -24.59% respectively. The exception was India’s S&P BSE SENSEX index which was positive 5.91% for the year.

In the US, the FAANG stocks led the charge to the bottom with Apple, Facebook, Amazon, Netflix and AMD among the biggest losers. Once the door opened, investors dumped equities for safer haven Treasuries as bonds rallied during the month. Everyone was waiting for and expecting a correction and it became a self-fulling prophecy.  The year started in an almost euphoric bullishness driven by earnings growth, low volatility, and synchronized global growth to only reverse course during the year as the impact of rising interest rates, trade wars, declining corporate earnings guidance and earnings misses weighed on the markets. 2019 began with a high level of concern over additional rate increases from the Fed, slowing earnings, continuous trade discussions with little resolution in sight, weakening leading indicators from the industrialized countries.

The question remains, have we entered a bear market? Time will tell, however from a global perspective one could argue equity markets have in fact entered bear market territory which is defined by a drawdown exceeding 20%. The economic data of leading indicators in the US  continues to show relative strength however the PMI, ISM and sentiment indicators are pointing in the opposite direction. Pundit sentiment seems to point to that the market has entered into a bear market with recession just around the corner. Europe is disconcerting as not only are the economic indicators weakening at an alarming rate but escalating political tensions between EU members adds to the uncertainty. Add Brexit to the cocktail of concerns and the future is anything but chaotic at best.

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