2018 Was Truly an Unusual Year for Markets

  • A surprising winner for the top asset class in 2018
  • Earnings grew, yet market prices declined
  • Seasonal holiday trading patterns did not pan out


You can read about our outlook for 2019 in the Investment Newsletter.  In the meantime, here are 3 facts that made the year 2018 truly unusual in recent market history.

Cash: The New Winning Asset Class for the First Time in a Decade

Source: Y-Charts.com and Ambassador Wealth Management estimates. The right column with colored bars shows the ETF tickers used to calculate total return for each category. They do not constitute an endorsement nor investment recommendation. These are not actual investment portfolios. Past performance is no guarantee of future results.

What is this chart?

  • This chart ranks annual returns on different asset classes from equities to fixed income to alternatives.
  • Assets on the top of the row indicate the best performers for a given year; assets on the bottom are the worst for a given year


Why does it matter?

  • Cash and fixed income occupied the top 3 positions, which had not occurred since 2008.
  • Cash was the best performing asset for the year. Returns were positive but below US core inflation of 2%.
  • Foreign stocks and commodities occupied the bottom 3 positions. Economic growth in Europe and China greatly decelerated in 2018.  This is not an unusual event for them to be at the bottom in the last decade.
  • US equities declined. The S&P 500 was the best performing major world equity market, but still negative.  (It had been up over +10% through September before coughing up its gains and then some in the fourth quarter.)


Earnings Growth Did Not Reward Investors

Source: Evercore ISI and Ambassador Wealth Management estimate. Past performance is no guarantee of future results. You might not be able to invest in an index such as S&P 500.

What is this chart?

  • This table displays historical returns of the S&P 500 when annual corporate earnings growth is strong (above 17%).

Why does it matter?

  • 2018 was only the fourth year in 45 years when earnings grew substantially – yet the market declined.
  • One factor in play might be that roughly half of this earnings growth came from lower corporate tax rates – a factor that will not recur in 2019.
  • Other macro worries pressured the S&P 500 (and most other world markets) in 2018.


Historical Trading Patterns Did Not Repeat Themselves in 2018

  1. Rally after midterm elections did not recur in 2018.
  2. Split Congress did not inspire stock markets in 2018.
  3. Seasonal peak in 4q did not result in stock market rally in 2018.
  4. December 2018 was the worst month for stocks since 1935 (midst of the Great Depression).

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