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Worldwide trade wars, rising interest rates, and Brexit woes have driven the majority stock indices to their worst in 10 years. Recession concerns for 2019 might mean more major drops, particularly for tech stocks.
Key US stock indices recorded their worst performance in 2018 since the start of the financial crisis, regardless of making slight gains on Monday the last trading day of the year.
The primary benchmark the S&P 500 index closed the year down by 6%, the Dow Jones Industrial Average dropped by 5.6%, and the Nasdaq composite slid almost 4%. The poor report card, however, came only four months after Wall Street saw the longest-ever bull market, following 10 years of eased monetary policies.
Key indices across Europe also finished 2018 in the red, including Germany’s DAX which closed in a bear market position, down by 22% a long way of its high in January of 18% up. The CAC 40 in France closed the year down by 11%, while Britain’s FTSE 100 dropped by 12.5%.
The majority of the Asian markets also lost footing in 2018; with stocks seeing 5 trillion USD (4.35 trillion EUR) wiped off their value. Key indices in Shanghai and Shenzhen saw yearly losses of 25% and 33% respectively, in part due to the slowdown in the Chinese economy, however, an intense trade war with the US worsened the drop. The Hong Kong Stock Exchange also closed the year our at almost 14% down.
At the beginning of 2018, Wall Street had a strong start, supported by a growing economy and corporate profits, and got a further lift when US President Donald Trump introduced a number of tax cuts. However, an unexpected market fall in the spring and further nerves in September and October saw investors become warier.
Oanda expert Craig Erlam told a news agency that the “Stock markets have been on a wild ride this year and the United States has been at the centre.”
However “the trade war with China and skirmishes elsewhere had weighed heavily on the relevant domestic markets which have dented investor sentiment.”
Can a Trade War be Averted?
Washington and Beijing put in place tit-for-tat levies on more than 300 billion USD worth of goods earlier in the year however in December they came to an agreement to a 90-day ceasefire, and investors have since seen conciliatory signs on both sides.
The Federal Reserve’s decision to increase interest rates further amidst worries of an economic slump provoked a backlash from Trump, who blamed the Fed for the market volatility.
However, a number of other factors helped drive market caution in the second half of the year, including a 40% crash in oil prices, the US government shutdown, and concerns over the future for tech stocks like Apple, Facebook, and Google.
In Europe, Italy’s financial worries and the unclear nature of Britain’s approaching exit from the European Union in March 2019, all added to investors’ views of the markets.
A number of market experts are now foreseeing another uneasy year for stocks in 2019, and possibly one of the most testing years for investors since the bull market started.
VTB Capital economist Neil MacKinnon said that “2018 has been characterized by a shift from low volatility, high liquidity and expectations of equity out-performance to high volatility, low liquidity and the return of a bear market inequities.”
He warned that “For 2019, a global economic slowdown, perhaps recession looks increasingly likely.”
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