Unfortunately, there was no Christmas rally or cheer for investors as markets continued to sell off into the end of 2018.
Trade disputes, slowing global growth, unorthodox US politics, US rate hikes and geopolitical issues all resulted in 2018 being a year of extreme stock market volatility. What little honeymoon period existed for Trump’s aggressive politics came back to bite as the year progressed. Specifically, the trade war with China and attacks on Fed chairman Jerome Powell all played a major part in the US market sell-off. This has caused global markets to falter, reinforcing the notion that the US economy and stock market lead world markets.
The trade standoff with China has been going on for long enough now to materially impact US companies. Tech giant Apple cut its sales forecast last week owing to weaker sales of iPhones, especially in China. Other large US companies that do meaningful business in China are also likely to trim sales forecasts. Chinese stock markets declined around 25% in 2018 largely on the back of trade concerns.
Also impacting markets was the Federal Reserve hiking interest rates mid-December to the highest level since 2008. The Fed pointed to a labour market that has “continued to strengthen” and economic activity that is “rising at a strong rate.” The Fed took a softer view for 2019, indicating potential for two rate hikes versus three previously. The need for further rate hikes has come into question due to lower inflation pressures (because of falling oil prices) and a weakening global economy. The price of Brent crude declined 8.4% in December and 19.5% for the full year.
As for the outlook for 2019, politics will be a big influencer, as it was in 2018. President Donald Trump’s antics will no doubt contribute to the outcome for 2019. Brexit remains the UK and Europe’s biggest challenge and risk. The US is currently engaging in trade negotiations with China and it will go a long way to restoring investor confidence if a positive outcome is reached. A trade deal between the two superpowers would see a very positive reaction in global markets. With most major indices seeing double-digit losses in 2018, investors worldwide will be hoping 2019 produces a recovery in markets.