Stock Market Re-Cap for 2018

What Happen On The Stock Market in 2018?

 

The first thing that I immediate need to point out is that the Australian stock market is heavily correlated to the US stock market.

If you wake up in the morning and notice that the news is reporting that the Dow Jones went down by 1%, then there is a good chance the Australian market will follow.

It won’t mirror the US market exactly, but it will follow closely. Nowadays investing is an international game. More so than ever.

The economy could be going well In Australia, but event in the US will dictate what our market does.

 

Quick Snapshot

Dow Jones -6.7%

NASDAQ -4.62

All Ords -7.6%

Notable Stocks

Facebook -24.39%

Apple + 9.35%

Amazon + 22.93%

Netflix +27.11%

Google -1.89%

 

A Shaky Start

The start to 2018 was a little shaky. Markets had a great year in 2017 with the DJI returning 25%.

The Dow and NASDAQ had a killer January with returns of 10% and 8% respectively.

The All Ords in Aus was a little more modest with just a few percent.

But February, the markets were in the red having wiped the gains from January and then some.

Most people have put this down to a mere correction which is common in the stock market.

 

US – China Trade War

In March, President Trump put into action the much talked about tariffs on Chinese imports.

Some of the tariffs were as high as 25%. The day it was announced, the markets sunk by 1-2%. This provided modest volatility across global markets

 

US interest rate hikes

The Federal Reserve Bank in the US increased interest rates a number of times during 2018. An increase in interest rates is a sign that the economy is going well.

Perhaps a little too well as it forces people to spend less and invest less and focus on saving and paying down debt.

If you have a mortgage and interest rates increase meaning you have to pay an extra $50 per month, that’s $50 less to spend.

Multiple that by 10 million people and you have $50m less per month being spent in the economy.

Stocks generally go down as people have less disposable income to spend on good and services.

 

All time highs

On two separate occasions the Dow and NASDAQ it all time highs. When a stock market does this it creates a little uncertainty among investors.

People start to question how much further will it rise or begin to panic because the are at the peak of the cycle.

It’s always good to approach this situation with caution. Look back to the last time a particular index hit an all time high.

Did it continue to rise? And if so, by how much and how long? Or did it decline. This information will give you a bit clarity on what you may expect.

Generally, after the markets hit their all-time highs (except Australia) smart investors started to pocket the profit by selling some of their holdings.

Having enough people do this will cause a bit of a pullback.

However, the media love playing up fear and panic. They were willing the markets to go down so they would have something to keep them in their job.

Fundamentally, there has been very little change in most stocks. It’s just media playing up the fear novice investors selling from that emotion.

A few companies like Facebook and most banks in Australia are the exception as they have had their own ongoing challenges.

 

 

Was 2018 a Bear Market?

I’m going to give some clarity around what a bear market actually is by putting it into context.

When a market is labelled it is done so with a reference to its recent highest point.

So the following indicate the appropriate title

 

Pull back – A decrease by 5% from recent highest price

 

Correction – A 10% decrease from recent highest price

 

Bear Market – A 20% decrease from recent highest point

 

So this a where things get a little interesting. Technically, the Dow did slip into a bear market as it decreased by 20% (just) from its yearly high.

But overall, a 6% loss for the year isn’t a major hit to one’s portfolio.

Netflix further emphasizes this point. At one stage during the year, the stock was returning 110% from the start of the year.

It instead, finished with a 27% return. Way off its high but given all the media hype and stock bashing, I’d say that’s a mighty fine return.  

 

This post was designed to give you an overview of the stock market in 2018. Keep an eye out for my next post on where the stock market is headed in 2019!

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