2018 Was a Rough Year, Fed May Need to Pause

Tom’s Roundup

Market Commentary from Thomas C. O’Neill, Senior Vice President Investments of Raymond James

2018 Was a Rough Year for the Markets

2018 Index Returns:

• S&P 500 declined –4.39%
• Russell 2000 declined –11.03%
• Nasdaq declined –2.81%
• The GDP growth rate peaked during Q2 2018 at 4.2%
• Fourth quarter (Q4) 2018, the S&P 500 declined –13.52% and the Russell 2000 declined –20.21%
• As of January 11, 2019, the average stock in the S&P 500 was down –21.5% from its 52-week high. (Source: Markman Capital) 

Fed May Need to Pause

There’s a good probability that the Fed may hit the pause button on raising rates for the following reasons: Long-term bond yields are coming down, and oil collapsed in the 4th quarter by 40%, both indicating a slower economy and lower inflation.

Oversold Indicators

Don’t be surprised to see a retest of the DOW at 21,700. As A number of technical indicators recently reached very “oversold” readings, with a few reaching levels we last saw at the bottom during the 2008-2009 crisis. 

For example, the 10-day average of stocks hitting new highs reached an all-time low of 2%. This is on a scale of 0% to 100%. In the past when this indicator has dropped below 10%, which is unusual, the market has bottomed. (Source: Nasdaq Dorsey Wright)

Opportunistic at Corrections

We advise that clients do not try to trade this market. During corrections, we look to be opportunistic buyers. According to Barron’s, 2019 earnings estimates has the DOW trading at a multiple of earnings of 14.3. This is on the undervalued side.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index.

The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system.

Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results.

International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. There are special risks associated with investing with bonds such as interest rate risk, market risk, call risk, prepayment risk, credit risk, reinvestment risk, and unique tax consequences. To learn more about these risks and the suitability of these bonds for you, please contact our office.

Any opinions are those of Thomas C. O’Neill and not necessarily those of Raymond James. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Expressions of opinion are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of strategy selected.