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Stock Market Summary 2018

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Stock Market Summary 2018

Well, 2018 is drawing to a close and unless in the last 4 and a half hours on Monday 31st December there is a sudden buying spree, it looks like most assets will be negative for 2018

The S&P 500 Index rose 4.96% as of 4 p.m. in New York on boxing day after falling within two points of a bear market earlier in the session. The Nasdaq 100 surged 6.2% and the Dow Jones Industrial Average rallied 1,086 points. 

499 out of the S&P 500, the top 500 largest companies listed on the New York Stock Exchange finished in positive territory. The Nasdaq 100, the top tech companies, rallied in a surge last seen in March 2009. Small caps joined the rally with a 5%  advance.

Consumer shares paced the rally, with Amazon jumping 9.5% after reporting record holiday sales. Energy producers surged as crude powered past $46 a barrel. All 30 industrial Dow Jones members gained, with Nike and Apple rising more than 7% on better than expected Christmas sales.

So, what is going on and why the stock market volatility?

  1. The Federal Reserve has raised interest rates and taking liquidity out of the market with its Quantitative Tightening programme. They are trying to get back to what they perceive is normality" with higher interest rates and reduced bond purchases.
  2. The trade war with China is biting - input costs for U.S. businesses are starting to rise making their products more expensive, reducing profits and soon the increased costs will have to be passed on to consumers, which is a drag on aggregate demand
  3. A U.S. federal government shutdown over refusing to pay for the $5 bn wall wall between the U.S. & Mexico - the shutdown is estimated to cost the economy about $6.5 billion per week. On top of the direct costs of stopping and restarting government programs, lost productivity and reimbursing furloughed federal workers, S&P noted the ripple effects would tear into private sector spending, earnings and job creation. About 420,000 employees are working without pay, while another 380,000 are being forced to stay home, plus they have had their pay increases freezed, which will mean less money for them to spend into the economy, so a drag on aggregate demand.
  4. The U.S. shutdown could block aid to farmers. These farmers are already losing thanks to the trade war with China, with the Chinese imposing tariffs and the U.S. government having to subsidize billions of dollars. 
  5. Closing the border could cost billions to the economy. Auto parts, manufacturing and agricultural supply chains and labour chains would be instantly disrupted, raising prices in the U.S.

All this is causing stock market volatility and the stock market to whiplash.

Stock Market Volatility in December

Stocks opened the week with a 2.7% selloff on Christmas Eve. The next trading day, Dec. 26, stocks plunged again, but then reversed to end up 5%, more than offsetting the previous daily loss. Stocks eased higher the rest of the week, ending 2.9% higher, which sounds like a typical Santa Claus rally.

It’s an ominous upswing, however. Analysts warned that such extreme buying and selling suggests wavering confidence and more volatility ahead. On the whole, stocks seem likely to end December down around 10%. And for the year, the S&P 500 is down around 8%, the worst annual performance since 2008, which was the year of the Great Recession.

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