Markets went for another wild ride last week, as major domestic indexes swung back and forth. By Friday, December 7th, markets had posted their worst weekly performance since March, and the S&P 500 and Dow both moved into negative territory for 2018.[1]

Overall, the S&P 500 lost 4.60%; the Dow declined 4.50%; and the NASDAQ dropped 4.92%.[2] International stocks in the MSCI EAFE also struggled, posting a 2.27% weekly loss.[3] 

Let's take a look at what is driving this challenging market performance. 

Examining Recent Volatility

1. How volatile are stocks right now?
If recent market fluctuations have felt intense to you, there's a reason: they are. The past three weeks have had the most volatility since 2008's financial crisis. During this time, domestic indexes have ricocheted between gains and losses. The large swings have occurred both week-to-week and within daily trading.[4]  

2. What is causing the volatility?
Many of the same themes we've discussed throughout 2018 are continuing to affect market behavior. Ultimately, many investors are worried that corporate profits and global growth will suffer if trade tension persists and the Federal Reserve continues raising interest rates.[5]  

Concerns about Treasury yields were also on investors' minds. For part of last week, 3-year Treasury notes had higher yields than 5-year notes. Called an inversion, a higher yield on shorter-term Treasuries can be a sign of a coming recession. The yield spread between 2-year and 10-year Treasury notes, which people focus on more, has not inverted.[6] 

3. Should you feel concerned?
With many headlines to digest, from conspiracy charges against a Chinese tech leader to comments from the Fed, investors had a lot to consider last week.[7]The difference is how they reacted to this information. For some time, markets were basically ignoring headlines. Now, they've moved in the opposite direction into what one investment manager called "a period of hypersensitivity."[8] 

Consequently, recent market performance may seem unnerving. As is often the case, however, the reality may be less extreme than what appears at first glance, especially when you look at the fundamentals. 

4. What do the fundamentals tell us?
While last week's market performance saw large fluctuations, the fundamentals we received were far less dramatic. We learned that two sectors beat expectations in November: manufacturing and service.[9] Further, the November labor report revealed fewer new jobs than anticipated, but unemployment is still at historically low levels, as job and wage growth continue.[10] 

Remember, risks exist in the markets and economy, and we're analyzing these details closely. If you have any questions about your financial standing or anything you hear in the news, we are here to talk. 

ECONOMIC CALENDAR

  • Monday: JOLTS

  • Tuesday: PPI-FD

  • Wednesday: CPI

  • Thursday: Jobless Claims

  • Friday: Retail Sales, Industrial Production


Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies. 

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia.

The U.S. Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations (bonds, notes and bills). The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market. 

The Federal Reserve System (also known as the Federal Reserve and, informally, as the Fed) is the central banking system of the United States. The Federal Reserve System is composed of 12 regional Reserve banks which supervise state member banks. The Federal Reserve System controls the Federal Funds Rate (aka Fed Funds Rate), an important benchmark in financial markets used to influence the supply of money in the U.S. economy.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Platinum Advisor Strategies, LLC, and not necessarily those of the named Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

[1] www.cnbc.com/2018/12/07/stock-market-dow-futures-fall-ahead-of-unemployment-figures.html
[2] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=%21DJI®ion=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
[3] www.msci.com/end-of-day-data-search
[4] www.bloomberg.com/news/articles/2018-12-07/stocks-drubbing-vexes-fund-managers-as-year-end-pressure-mounts?srnd=premium
[5] www.bloomberg.com/news/articles/2018-12-07/stocks-drubbing-vexes-fund-managers-as-year-end-pressure-mounts?srnd=premium
[6] https://www.cnbc.com/2018/12/07/stock-market-dow-futures-fall-ahead-of-unemployment-figures.html
[7] www.bloomberg.com/news/articles/2018-12-06/asia-signals-mixed-start-for-stocks-yields-drop-markets-wrap?srnd=markets-vp
[8] www.cnbc.com/2018/12/07/stock-market-dow-futures-fall-ahead-of-unemployment-figures.html
[9] www.ftportfolios.com/Commentary/EconomicResearch/2018/12/3/the-ism-manufacturing-index-rose-to-59.3-in-november
www.ftportfolios.com/Commentary/EconomicResearch/2018/12/6/the-ism-non-manufacturing-index-rose-to-60.7-in-november
[10] wsj-us.econoday.com/byshoweventfull.asp?fid=485662&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top