Here’s an update for December’s Stock Market performance and global economic concerns from LOM Financial:
The month of December was once again dominated by troubling economic headlines ranging from disruptive global trade negotiations to disturbing U.S. central bank commentary. On top of the steady drum beat of what some are calling dysfunctional political behavior, the U.S. Government’s partial shutdown has added to the negative investor sentiment which has been building all year. Sliding stock prices over the last month of the year added to the fourth quarter market woes, notwithstanding a sharp equity market reversal on the day after Christmas. For the month of December, the S&P 500 declined by -9.03% and the MSCI World Stock index fell by -7.57%. These results capped an overall tumultuous year where the MSCI World declined by 8.19% for the period as a whole.
Since the U.S. and China met during the G20 meeting at the beginning of December, China has implemented multiple policies addressing major issues in trade war negotiations. China agreed to cut tariffs on more than 700 goods in sectors such as agriculture, pharmaceutical, manufacturing and materials. Despite the progress, most products will still be subject to the retaliatory tariffs until there is a breakthrough in the trade deal. Furthermore, China has drafted a law to prevent forced technology transfers, which is a main complaint by Washington. However, critics question whether the new law will be enforced successfully. U.S. trade representatives will travel to China in January for another round of negotiations and any update from their talk will likely affect markets early in the New Year.
Despite the ongoing risk market selloff in during the fourth quarter, the Fed still decided to raise the Fed Fund rate for the fourth time in 2018, to a range between 2.25% and 2.5%. However, the Federal Open Market Committee (FOMC) did adjust next year’s projected base rate move downward to just two hikes, in the face of market volatility. However, Fed Chairman, Jerome Powell reiterated the plan for balance sheet runoff. As the Fed downplayed risks to the economic outlook, investors worry that a hawkish central bank will ultimately slow the economy and send markets into another tail spin. As interest rates continues to climb, consumers will feel even more pressure on mortgages and auto loan payments. Overall, businesses have begun to experience a higher interest burden.
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