2018 saw the return of volatility to markets, culminating in a particularly grim December. As a result, many major indices have had their worst year since the global financial crisis a decade ago. The FTSE 100 index ended the year down -12.48%, while the S&P 500 index finished on -6.24%. The bearish sentiment in December came largely from fears over the US and China failing to strike a trade deal.
The Dow Jones Industrial Average (DJIA) index, which measures 30 of the largest blue-chip stocks in the US, had a particularly volatile year. Since its inception, the index has swung by more than 1,000 points just eight times in its history, and five of those were in 2018. Meanwhile the S&P 500 index was up or down more than 1% nine times in December alone – compared to eight times in the whole of 2017 - and both the DJIA and the S&P 500 index had their worst December since the Great Depression in 1931.
It wasn’t just investors who endured a difficult December; after cancelling the ‘meaningful vote’ on the UK’s withdrawal agreement from the EU due to the likelihood it would not be passed, Theresa May faced a vote of no confidence from her own MPs. Having survived with 63% of the vote, she returned to Brussels the next day in a bid to amend the withdrawal agreement, with the next meaningful vote due to take place later this month.
Here is the round-up of December market performance. In the UK, the FTSE 100 index declined -3.49%, while medium and smaller companies, measured by the FTSE 250 ex IT index and the FTSE Small Cap ex IT index, shed -5.28% and -3.50% respectively. In the US, the S&P 500 index fell -9.03%, while in Europe the Eurostoxx 50 index conceded -5.23%. Japanese stocks measured by the Topix index plunged -10.21%.
Emerging market returns were also negative, as the MSCI Emerging Markets index slid -2.46%. Chinese equities continued to struggle as the MSCI China index dropped -6.04%, Indian stocks held up relatively well as the IISL Nifty 50 PR index dipped just -0.13%. Latin American equities, measured by the MSCI Latin America index, declined -1.17%.
The fixed income markets were more positive. UK government bonds, measured by the FTSE Gilts All Stocks index, gained +2.19% and long dated (over 15 years to maturity) gilts picked up +4.67%. In the corporate market, European corporate bonds, measured by the Markit iBoxx Euro Corporates index, rose +0.17% while sterling denominated corporate bonds, measured by the Markit iBoxx Sterling Corporates index, returned +1.11%. In the high yield market, the Bank of America Merrill Lynch Euro High Yield index and the Bank of America Merrill Lynch Sterling High Yield index relinquished -0.38% and -0.92% respectively.
In the commodities market, the S&P GSCI index, which consists of a basket of commodities including oil, metals and agricultural items, fell -7.75%. Oil’s slump continued as the price of a crude oil contract sank -10.84%. The precious metals on the other hand enjoyed a positive month, with the S&P GSCI Gold and Silver indices returning +4.73% and +9.53% respectively. The agricultural markets were negative though, as corn and wheat lost -0.73% and -2.42% respectively.
In the FX market, the US dollar was flat against the pound as it moved just -0.04%, while the euro gained +1.30% against the pound.
James Timpson CFA, BSc (Hons), IMC
(All the above returns are reflected on a local currency basis i.e. they do not factor in any relevant currency movements. Unless accompanied by PR (Price Return), they do include income).
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