If you haven’t noticed, the markets have gone from bad to free-fall. They can’t seem to catch a break or a bounce. 2017 was among the calmest years ever – no more than a 3% fall, up every single month of the year!
On the other hand, 2018 has been among the most volatile of years – two 10% + corrrections with, now, 50% of all stocks down 20% or more. Through late Nov., data show 90% of all 70 different asset classes were down, which is the worse performance in that data set since records began being kept around 1950.
How many different asset classes fell in 2017? 1%
Even more astonishingly, to me at least, December, 2018, has turned out to be the worst December since 1931, a year when banks were falling by the dozens each month. And too, December is, historically, just about the best month for investment returns of the year.
Why this carnage?
I don’t know, but here some reasons offered:
- Investors have grown increasingly concerned about a slowing economy and a possible near-term recession.
- There is a growing sense that the Federal Reserve will raise interest rates too much (or perhaps that it already has).
- The U.S./China trade dispute remains unresolved and has the potential to disrupt growth.
- Programmatic trading and selling of ETFs and passive investments has exacerbated all of the above.
- And, finally, these factors were magnified by a holiday-related low-liquidity environment.
But these elements are not new. And yet they are seen now as deeply threatening to the US economy as were the events of the fall 2008 – remember those? bank failures? AIG? Lehman Brothers? Fannie/Freddie? and more? Yes, we’re looking at numbers this month that rival that dreadful fall.
But how is USA doing this fall?
- GDP was up 4.1% in the 2nd Q, up 3.5% in the 3rd Q., and 3.4% in the 4th Q of 2018 vs. 2.2% per year overall under the prior Pres. administration
- Corp. earnings have smartly – over 28% in the last year
- Tax cuts are working
- Inflation is modest
- Unemployment is 3.7% in Dec 2018
- There are more jobs than people to fill them
- Deregulation is helping
- Business/investment friendly environment as opposed to the prior decade
But none of this matters. None of it. Today, all good news is bad news. All neutral news is bad news. And all bad news is very, very bad news.
So, the S&P 500 fell 7.1% this week, is down 9.7% this year, and is down almost 20% from its high this year?
Why? Again, I don’t know. It truly seems irrational, but being an investor means that, from time to time, we have to live through some irrationality. And we’re deeply in that right now. When we exit this financial nightmare is anyone’s guess. But exit it we will and likely with an explosion upwards.
Here’s a last thought. I’m not a conspiracy geek. But markets are so extraordinarily awful, with no bounces up amid great economic data, I can’t help but wonder, is there some state wealth fund out there that is trying to destroy US markets? inspire chaos? pull down an administration that threatens it? Don’t know. But China comes to mind. Again, that’s not a conspiracy theory. It’s just a thought, a crazy thought, but not altogether crazy, given the squeeze Trump is putting on China. We’ll see where and how this ends, but if you have not followed markets this fall and, more particularly, this December, you would best sit down when you open your retirement savings statements for the 4th quarter of 2018.
One final, final thought: Merry Christmas and Happy New Year. As Teresa of Avila once said: “Everything passes, patience gains all. He or she who has God has everything.”