Global financial markets experienced heightened volatility during the fourth quarter of 2018 as concerns surrounding higher interest rates here in the U.S., and uncertain trade and tariff relations worldwide, weighed heavily on investor sentiment. We present a few highlights from the 4Q18 below:
• U.S. equity markets sold off sharply during the fourth quarter in volatile and choppy trade, with large intra-day moves the norm. In this “risk-off” environment, the S & P 500, the Dow Jones Industrial Average and the technology-heavy Nasdaq Composite traded sharply lower. On the economic front, U.S. economic data remained strong. However, there are potential international and domestic headwinds that could dampen growth, particularly uncertainty surrounding trade policy for U.S. businesses.
• Developed international equity markets posted steep declines in tandem with those here in the U.S. Financial markets in the Eurozone generally lagged those in the Pacific ex-Japan region as Brexit worries persisted. On the political front, Prime Minister May faced resistance from her EU counterparts in a bid for new Brexit concessions, sparking concerns of a chaotic no-deal outcome that could potentially be damaging for the European and British economies. In the emerging markets, returns were held back by weak performances from several large Asian economies.
• Within fixed income, results were mixed as the 10-year U.S. Treasury fell below the psychological level of 3% for the first time since mid-September. Investment grade core U.S. fixed income produced results that were slightly positive, while high yield bonds fared worse. Emerging markets debt fared relatively well during the quarter, but remains fixed income’s worst performing sector year-to-date.
• Crude oil prices fell sharply during the fourth quarter, which weighed on both the Commodities and MLP sectors. In early December, OPEC countries and other oil producers agreed to reduce oil production on concerns of oversupply.
An important lesson from 4Q18:
• The fourth quarter and all of 2018 was a good reminder that investors must remain mindful of geopolitical and other event risk and the associated volatility that comes with it. The fourth quarter was marked by heightened global trade tensions and the fate of Brexit was front and center. As we enter 2019, it is more important than ever to remain properly diversified. It is our continued belief that remaining patient and adhering to a well-constructed and diversified investment portfolio anchored to your time horizon and goals remains the prudent course of action.