Market Beat: Looking ahead to 2019
January 14, 2019
This should be an interesting year for the markets. 2018 closed out with high volatility and negative returns for most of the major indices.
Market volatility tends to run in cycles, spending about 85 percent of the time falling with the market rising. The other 15 percent of the time the market is falling with high volatility. On average, December is one of the best months for the market.
Last year, December was very volatile. We had five trading days where the markets' intraday swings were over 3.25 percent, which is much higher than normal. We also saw a record up day for the Dow Jones industrial average in point terms when it rose by 1,086 points which was 5.35 percent. I guess that day might be considered the "Santa Claus Rally" last year.
If we look at the performance of the ETFs that represent the broad markets, we see that most of them were negative for the year in terms of total return. The SPY that represents the S&P 500 was down -4.56 percent for the year. The Dow fell by -3.74 percent. The fund that represent the tech heavy NASDAQ, the QQQ only dropped -0.12 percent.
Foreign markets fell more than the United States. The EFA, which represents Europe, Asia and the Far East declined by -13.81 percent. EEM, which consists of the emerging markets dropped by -15.31 percent.
Bond returns were mixed, long term US Treasury bonds as represented by the TLT were down -1.61 percent for the year. The US aggregate corporate bond fund, AGG posted a small gain of 0.10 percent.
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Commodities and natural resources were also down for the most part. Gold as represented by the GLD fund was down -1.94 percent. Silver, SLV, dropped -9.19 percent. Oil was also down over the year, the USO fund fell by -19.57 percent. Unleaded gasoline, UGA went down -28.07 percent, which made for some decent prices at the gas pump.
Looking ahead we'll have some challenges to face this year.
Right now we're in the midst of a government shutdown and the political environment is not contributing to a sense of stability. The Fed is in a tightening cycle and many forecasters believe that we may see two or even three more interest rate hikes this year. Hopefully, the Fed won't go too far and overtighten, which could slow the economy too much. We are already seeing signs that the economy is still growing, but at a slower rate.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.
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