Last week, domestic markets had some of their worst performance in 10 years.[1] The S&P 500 lost 7.05%; the Dow declined 6.87%; and the NASDAQ dropped 8.36%. All three indexes have now lost at least 8% in 2018.[2] On Friday, December 21st, the NASDAQ entered a bear market, which means it's at least 20% below its last record high. Meanwhile, the S&P 500 and Dow both finished the week close to bear markets, too.[3] Internationally, stocks in the MSCI EAFE also struggled, posting a 2.67% weekly loss.[4]

What happened to the markets?

Last week brought a number of economic updates, which gave mixed signals on the economy:

  • Consumer spending increased in November. 

  • Business spending slowed. 

  • Economic growth in the 3rd quarter slightly missed projections.[5] 

However, markets hardly focused on the data.[6] Instead, two key headlines drove the week's performance: 1) results from the Fed's latest meeting and 2) the risk of a government shutdown.[7]

Let's look a bit more into what happened, and how the markets reacted.

1. The Federal Reserve increased rates and shared its economic projections. Markets expected the Fed's fourth interest rate increase for the year.[8] In many ways, traders were trying to read between the lines of every Fed announcement last week to see how sensitive the agency would be to the markets. As a result, investors became concerned about the Fed's statements that increases could continue in 2019, despite seeing a slowdown in economic growth. This reaction caused some of the sell-offs.[9]  

2. A government shutdown loomed, and then happened. A disagreement between Congress and President Trump about government funding for a border wall continued throughout last week. While a deal had seemed imminent, by Friday afternoon, the political divide continued and a shutdown loomed. Stocks dropped significantly as a result. By Saturday morning, nine of the 15 federal departments had closed due to the shutdown.[10]

What should you do?

These challenging moments are when keeping perspective is most important. Sell-offs and uncertainty can feel worrisome, and we cannot say for sure how long this market turbulence will continue. 

In the weeks ahead, the government shutdown may continue, and we may not experience the strong "Santa rally" that investors hoped for.[11] However, it's important to remember that, historically, shutdowns are short and don't typically create negative long-term effects on the economy.[12] 

However, when thinking about the current environment, we want to encourage you to consider airline turbulence: during a flight, turbulence can feel unsettling and downright scary, but you don't jump out of the plane just because it's shaking. While you may worry about a crash, the pilots are using every available data point, measurement, and expert to find the safest path to your destination. The unpleasantness almost always calms, and you arrive where you intended to go.

In this same manner, we're tracking this current turbulence and how it relates to you. No matter what lies ahead, we're here to pilot you through. If you want to discuss specifics about our economy, your goals, and current momentum, please contact us. We're always ready to help you understand your financial life.

ECONOMIC CALENDAR

  • Monday: NYSE Early Close

  • Tuesday: Markets Closed for Christmas Day

  • Thursday: New Home Sales, Consumer Confidence, Jobless Claims

  • Friday: Pending Home Sales Index



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 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/2018/12/21/stocks-on-brink-of-bear-market-.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.cnbc.com/2018/12/21/stocks-on-brink-of-bear-market-.html
[4] www.msci.com/end-of-day-data-search
[5] www.reuters.com/article/us-usa-economy/u-s-third-quarter-growth-trimmed-business-spending-slowing-idUSKCN1OK1N9
[6] www.reuters.com/article/us-usa-economy/u-s-third-quarter-growth-trimmed-business-spending-slowing-idUSKCN1OK1N9
[7] www.cnbc.com/2018/12/20/us-futures-following-wednesdays-sell-off.html
[8] www.cnbc.com/2018/12/19/fed-hikes-rates-by-a-quarter-point-.html
[9] www.cnbc.com/2018/12/21/stocks-on-brink-of-bear-market-.html
[10] www.bloomberg.com/news/articles/2018-12-22/shutdown-begins-as-trump-and-democrats-negotiate-on-border-wall?srnd=premium
[11] www.reuters.com/article/us-usa-congress-budget/with-no-deal-u-s-government-shutdown-likely-to-drag-on-past-christmas-idUSKCN1OL04C
www.cnbc.com/2018/12/21/stocks-on-brink-of-bear-market-.html
[12] www.usatoday.com/story/money/2018/12/21/government-shutdown-impact-dow-jones-industrial-average/2386933002/