Despite companies reporting record – or near record – profits, the US bull market came close to entering a bear market, as politics seemed to dictate the direction in 2018.
Notable disparity between regions was seen with India and Brazil being the standout performers; even with emerging markets being hit by a strong dollar, rising US rates and a slowing Chinese economy.
India surged ahead from mid-March and through the summer but then capitulated reaching a low for the year in October. Yet since then it has delivered a positive return, which saw it reach positive territory by the close of the year. Gains have been aided by a relaxing of trade tensions and a sharp fall in the oil price.
US indexes experienced record highs with the Dow hitting a peak in January and the S&P 500 closing at its highest level in September. These highs were achieved in a year which saw volatility pick up from historic lows in 2017, after the FED called time on the party on Wall Street. It raised rates four times as fears of inflation picked up. Two prominent US companies (Apple and Amazon) reached trillion dollar valuations, before a tech sell-off in October saw billions wiped off their price tags.
Europe carried a lot of expectation heading into 2018 but trade disputes, German and Italian elections, European bank scandals and slowing global growth put a halt to that. Japan entered bear market territory as it got caught up in the concerns about the strength of global growth and the trade war between the US and China.
UK growth held up considering Brexit continues to cloud investor sentiment, with many analysts now arguing the attractiveness of valuations.
China’s Shenzhen was by far the worst performing of the major indexes, hit by the trade war with the US and the slowdown of its economy, which has seen its manufacturing indicator recently pointing to a contraction. One of the worst-performing sectors in the country was technology, which include companies such as Tencent and Baidu, the darlings of Chinese Tech.
Equity markets performance
Best performing equity markets in 2018 were: Brazil IBOV index returning 15.03% and India Sensex index returning 5.91%.
The worst performing were: China Shenzhen index returning -33.25% followed by, MSCI EM Europe Middle East & Africa returning -18.80%, Japan Topix index returning -17.80%. MSCI Europe returned -13.10% and the US S&P 500 index returned -6.24%.
Sector performance
Globally the best performing sectors based on data provided by MSCI World were; Healthcare returning 1.01% followed by Utilities returning -0.97%.
The worst performing were Financials returning -19.04% (Insurance returned -13.63%) followed by Materials returning -18.84% and Energy returning -18.22%.
Specific to the US the S&P 500 best performing sectors were Healthcare returning 4.69% followed by Utilities returning 0.46%.
The worst performing were Energy returning -20.50% followed by Material returning -16.45% and Communication Services returning -16.43%. Communication Services includes companies such as Alphabet (Google), Netflix, Facebook and Walt Disney.
Information Technology returned -1.62%. Information Technology sector includes companies such as Microsoft, intel, Apple and Visa.
Other observations
2018 was certainly a challenging year and any investor only making a small gain should be pleased with themselves. Volatility picked up, politics ruled and gold shone once more.
There is a kaleidoscope of conjecture over possible directions for markets, assets and sectors in 2019 but valuations are once again looking more attractive than they were at the start of 2018. We can also be certain that volatility will persist, we will be discussing Brexit for the foreseeable future and Donald Trump will continue to polarise opinion.
|
