December 31, 2018 — After beginning the week in freefall, equites finished up last week on the back of the dramatic run up in stocks on Wednesday that saw the Dow Jones Industrial Average gain 1,086 points in one day. Meanwhile, Treasury prices rose last week amidst all the volatility in the equity markets. As 2018 draws to a close, the S&P 500 Index after dividends is on pace for its first annual loss since 2008 as slowing growth, tariffs and a further tightening from the Federal Reserve remain key headwinds for investors in 2019.
Already elevated market volatility was exacerbated by lower than normal market liquidity due to the holiday-shortened week and the partial government shutdown. In addition, Treasury Secretary Steven Mnuchin stirred fears of a liquidity crisis in the financial system by calling all six major banks to check on their status. Although he declared liquidity is fine within the banking system, the announcement unnerved many investors. However, while investor uncertainty has increased, consumer spending remains strong as U.S. holiday sales increased by the largess clip in six years.
Looking ahead, sentiment will continue to drive short-term returns of the market as the partial government shutdown will continue to make headlines next week. Longer term, fundamentals tend to play a bigger role in market returns. Fourth quarter earnings season will start mid-January, which is expected to see continued strong earnings growth with the S&P 500 anticipated to grow earnings by over 20% for the full year. While investors have pulled tens of billions of dollars from equity mutual funds over the past weeks and months and bearish sentiment is at a five-year high, both tend to be contrarian indicators that might point to a rebound in equities if some of the current clouds over the market lift.
Sources: briefing.com, Yahoo Finance, Kitco.com, U.S. EIA, First Trust, Wintrust Wealth Management analysis. Returns are total returns calculated through 12/28/2018 and 5 year returns are annualized. Gold is the New York spot price in $/oz. Oil is the Cushing, OK WTI spot price FOB in $/BBL. Securities, insurance products, financial planning, and investment management services are offered through Wintrust Investments, LLC (Member FINRA/SIPC), founded in 1931. Trust and asset management services offered by The Chicago Trust Company, N.A. and Great Lakes Advisors, LLC, respectively. ©2018 Wintrust Wealth Management
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