2018 was all about Donald Trump and what will he tweet next, trade tensions between USA and China, the impact that this will have on economic growth, corporate profits and inflation, China’s massive and slowing economy and of course BREXIT.
December was for more than one reason a very volatile month, in the ten trading days before the holiday break, the Dow fell more than 350 points six times. There was also one day when the Dow rose by 1,000 points- that was the biggest point gain ever.
The market is in an historic period of volatility. The S&P was up or down more than 1% nine times in December. During 2018 the S&P was up or down 64 times. In all of 2017 that happened only eight times. December 2018 saw the Russell 2000 fall into a bear market- the first major US index to tumble 20% from its peak. Stocks in the US had their worst December since the Great Depression.
The fall in equities, can be placed side by side with the jump in corporate profits, this has suddenly left the valuation of US companies in territory that might be deemed reasonable. Earnings growth is expected to slow to about 8 per cent this year, a notable deceleration even allowing for the absence of the one-off benefit from tax cuts. Such a profit progression implies that the S&P 500 is trading on a projected price-earnings ratio of just below 15, around the mean for the past ten years and a couple of points below its average for the past five.
At FitzGerald Flynn we embrace market pricing, we do not try to outguess the market, we resist chasing past performance, we let the markets work for you, we consider the drivers of return, we always practice smart diversification, we avoid market timing, we advise clients to manage emotions , look beyond the headlines and focus on what you can control.