2018 Not A Good Year For The Markets
As global markets gradually get back into gear for the New Year of 2019, it is the traditional time to see how they fared over the past 12 months. The short answer is “badly”. Indeed, 2018 was the worst year of performance for the stock markets since the Global Financial Crisis got properly underway in 2008.
The key drivers of weaker market performance last year were the self-inflicted wounds of Brexit in the UK and Trump’s trade war with other nations and specifically China. Both of these events cause wider disruption than in the economies of the nation(s) involved because of the interconnectivity of the global economy. Both events were intended for a domestic audience (the British and the Americans) but are short-term fixes which cannot address the underlying fundamental problems with social and economic deprivation at the heart of the system. Both would better be handled with significant domestic reforms at home which could simultaneously boost wealth creation and social equality, but that is a different political thesis! This piece deals with their effect on the global economy as reflected in the world’s major markets.
The twin events of Brexit and trade war have contributed somewhat to a slowing of the global economy which, in itself, has produced negative sentiment in investors. This has seen the FTSE-100 fall by 12% to stand at 6728 points. Losses on the Dow Jones Industrial Average were more muted, but it lost 5.6% of its value; the Nasdaq was down by 3.9% and the S&P 500 saw a 6.2% fall. The US declines must be judged against the backdrop of Trump’s $1.5 trillion tax cuts which came into force at the end of 2017 and were intended to boost the US economy.
Hong Kong’s Hang Seng lost nearly 14% in 2018 whilst Japan’s Nikkei endured losses of almost 15%. These losses were made to look modest by the 25% hit taken by the Shanghai Composite index.
Initially, 2019 will see little change in investor sentiment since the driving forces remain unchanged, but both Brexit and the trade war could have swift and favourable outcomes which would see markets take a much more Bullish stance.