Our 2018 Re-Cap of the Markets

The financial markets to a large extent showed losses across stocks, bonds, and many commodities last year. Looking into the categories a bit more closely, bonds eeked out a small gains of even to 1-2  percent, including interest earned.

That was the rare bright spot, folks. Looking at stocks, 8 of the 10 S&P sectors ended in the red: Utility stocks and Health Care ended positive for the year. Commodities were mixed to down. Oil prices fell 25% last year, which was good for consumers, but bad for profits in the Energy sector.

Through nine months, the stock market looked impeccable; another year of double- digit growth looked very achievable. Then the road got rough – fast. As October unfolded, interest rates started to rise, and housing and mortgage growth slowed. China trade skirmishes didn’t help matters. Earnings growth was perceived as slowing, although very robust nearing its 10th year of an economic recovery (the longest in Post WWII times).

At the end of the day, more sellers were interested in moving money out of stocks, rather than make new commitments to buy. Suddenly, there were more reasons to be scared of stocks, and less reasons for confidence. And sentiment – what investors think and feel – are most important. You can rationalize all day, but the markets often act irrational in behavior.

The Dow Jones Industrials and Standard & Poor’s 500 Indices fell 3.5% and 4.5% respectively for 2018 including dividends, while the Nasdaq Composite lost -3.9%. Many stock fell much more, the smaller the company, the more chance of larger losses last year.

One final positive push was in store, as The Santa Claus rally surfaced, starting on Christmas eve, as the stock market (Dow) rallied a BIG 7% during the next 4 sessions to close out the old year, 2018. It’s an understatement that volatility increased dramatically in the fourth quarter.

Our favored commodity to own, Gold – fared well comparatively, as it moved just 1% lower; that’s $12 an ounce decline, to $1,279 on the year.

Where do we go from here?

First, we recommend to keep lots of cash on hand until conditions and the charts tell us it’s safer to invest and an uptrend is developing. You may miss some gains off the bottom bounce - that's starting to develop now as favorable news is reported and interest rates are backing down a bit. As the stock indexes move higher, confidence will come back, and it'll be a safer entry point.

Next, we watch the pot and don’t leave it unattended. BUY and HOLD is not in our vocabulary.
Thaks for reading and Happy New Year !