For nine years investors were able to take stock market gains for granted. It was a different story in 2018. Stocks are down and volatility is up! All of the major indexes finished 2018 in the red, leaving investors concerned about what 2019 has to offer. There is a chance 2019 could be a winning year on Wall Street and Bay Street, but a large number of seemingly insurmountable hurdles need to be cleared first. That doesn’t mean investors should run for the exits. If anything, the lack of confidence on Wall Street could open the window of opportunity for savvy investors.
Will 2019 Be as Ugly as 2018 Was?
It was a record-setting year for stocks in 2018, just not in the right direction. The S&P 500 ended the year 6.5% in the red, the Nasdaq was down 4.3% on the year while the Dow Jones Industrial Average slipped 5.9%, and the NYSE plunged 11.55%.
It was the worst year for stocks since 2008 and the worst December since the Great Depression.
It wasn’t all bad news though. The Dow hit a record high on October 3 and the S&P 500 hit an all-time high on September 20. But it was a roller coaster ride for much of the year. With the biggest plunge coming at the end of the year.
The VIX volatility index, or fear gauge, is at around 28.5 and has increased 77% since the start of last year. In fact, the index was stuck in “Extreme Fear” for much of 2018. The VIX falls when stocks rise and advances when stocks fall. The current level shows investors are increasingly worried about the direction of stocks in 2019.
Why the fear? Isn’t the current stock market retraction just a well-deserved correction? Not this time. Investors aren’t taking profits because life is good. They’re starting to run for the exits. The current volatility is being driven by signs of a cooling global economy; this includes fears of a recession in the U.S. (the world’s biggest economy), and slowdown in China (world’s second biggest economy), and Europe (world’s largest economic region).
There are also signs that Canada could slip into a recession in 2019. Rising interest rates coupled with high debt levels is expected to negatively impact Canada’s 2019 gross domestic product growth. Look for Canada’s economy to face headwinds in the auto and oil sectors. This will inevitably hit the TSX and Canadian stocks.
There are concerns that the U.S. Federal Reserve is raising its key lending rate too quickly which could curb U.S. economic growth and ongoing fears of inflation. Then there is the political deadlock in Washington. No one knows how long the shut-down will last. And there is also the ongoing trade war between the U.S. and China.
All of these factors are weighing heavily on Bay Street and Wall Street in 2019.
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Photo Credit: iStock.com/monsitj
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