Last week, domestic markets had some of their worst performance in 10 years.[i] The S&P 500 lost 7.05%, the Dow declined 6.87%, and the NASDAQ dropped 8.36%. All three indexes have now lost at least 8% in 2018.[ii] On Friday, December 21, the NASDAQ entered a bear market, which means it’s at least 20% below its last record high. Meanwhile, the S&P 500 and Dow both finished the week close to bear markets, too.[iii] Internationally, stocks in the MSCI EAFE also struggled, posting a 2.67% weekly loss.[iv]
What happened to the markets?
Last week brought a number of economic updates, which gave mixed signals on the economy:
- Consumer spending increased in November.
- Business spending slowed down.
- Economic growth in the 3rd quarter slightly missed projections.[v]
However, markets hardly focused on the data.[vi] Instead, two key headlines drove the week’s performance: 1) results from the Fed’s latest meeting and 2) the risk of a government shutdown.[vii]
Let’s look a bit more into what happened¾and how the markets reacted.
1. The Federal Reserve increased rates and shared its economic projections.
Markets expected the Fed’s 4th interest rate increase for the year.[viii] In many ways, traders were trying to read between the lines of every Fed announcement last week to see how sensitive the agency would be to the markets. As a result, investors became concerned about the Fed’s statements that increases could continue in 2019, despite seeing a slowdown in economic growth. This reaction caused some of the sell-offs.[ix]
2. A government shutdown loomed and then happened.
A disagreement between Congress and President Trump about government funding for a border wall continued throughout last week. While a deal had seemed imminent, by Friday afternoon, the political divide continued and a shutdown loomed. Stocks dropped significantly as a result. By Saturday morning, 9 of the 15 federal departments had closed due to the shutdown.[x]
What should you do?
These challenging moments are when keeping perspective is most important. Sell-offs and uncertainty can feel worrisome¾and we cannot say for sure how long this market turbulence will continue.
In the weeks ahead, the government shutdown may continue, and we may not experience the strong “Santa rally” that investors hoped for.[xi] However, it’s important to remember that, historically, shutdowns are short and don’t typically create negative long-term effects on the economy.[xii]
However, when thinking about the current environment, we want to encourage you to consider airline turbulence: During a flight, turbulence can feel unsettling and downright scary. But, you don’t jump out of the plane just because it’s shaking. While you may worry about a crash, the pilots are using every available data point, measurement, and expert to find the safest path to your destination. The unpleasantness almost always calms¾and you arrive where you intended to go.
In this same manner, we’re tracking this current turbulence and how it relates to you. No matter what lies ahead, we’re here to pilot you through. If you want to discuss specifics about our economy, your goals, and current momentum, please contact us. We’re always ready to help you understand your financial life.
Monday: NYSE Early Close
Tuesday: Markets Closed for Christmas Day
Thursday: New Home Sales, Consumer Confidence, Jobless Claims
Friday: Pending Home Sales Index
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Diversification does not guarantee profit nor is it guaranteed to protect assets.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia.
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