Week In Review 12.21.2018

Markets endured another turbulent week, with major U.S. equity indices all ending the week down -7% or more. Both the technology-heavy NASDAQ, and the Russell 2000 (small caps), ended the week in “bear” territory, having fallen by over 20% since reaching record highs in late August. For the S&P 500, it was the worst week since August 2011, when markets were roiled by Standard and Poor’s credit downgrade of the U.S. As has been the case for the past several weeks, concerns about global growth featured prominently in the selling. The Fed’s fourth rate hike of 2018, an impending government shutdown, and a nearly -12% decline in oil prices, also weighed on markets.

Ongoing concerns about global growth were exacerbated on Tuesday by FedEx, often considered a bellwether for global growth. In reporting its fiscal second-quarter earnings, the company lowered its earnings outlook citing weaker international growth, especially in Europe.

The Federal Reserve raised interest rates by 0.25% at the conclusion of its December meeting on Wednesday. While the rate hike was widely expected, market reaction was negative as investors had been hoping for a more “dovish” tone from the Fed. However, the Fed’s upbeat assessment of the economy coupled with comments by Fed Chair Jay Powell that the Fed 1) is not overly concerned with recent market volatility and 2) will maintain its current balance sheet reduction program, left markets disappointed.

While not fundamental to the markets, the possibility of a government shutdown created an additional source of uncertainty for markets to consider. A government shutdown would close ~25% of the government. The other 75% is currently funded through the end of the fiscal year in September 2019.