The Year In Stocks, Gold And Bitcoin

The Year In Stocks, Gold And Bitcoin By Alex Kimani for Safehaven

It’s been a rollercoaster end to a decidedly downbeat 2018 for U.S. stock markets, with stocks posting a series of upside and downside intraday reversals in the month of December and traders frequently caught out by the markets’ sharp swings.

This heightened volatility was underscored by the holiday-shortened week, with major indexes falling more than two percent to post their biggest Christmas Eve drop before staging a major recovery to log their biggest post-Christmas gain in history.

At this juncture, the bulls are desperately waiting for the market to return to less volatile price swings and hope that U.S.-China trade negotiations, a more accommodative Fed policy and upbeat corporate earnings/economic data will help kickstart the markets from their swoon.

It might take a few months for these variables to flesh out and trigger a sustained rally in the new year.

Bear Market Beckons?

(Click to enlarge)

(Click to enlarge)

(Click to enlarge)

Source: CNN Money

Amid all this back and forth, all major indexes have moved from the green to the red in the final month of the year and looking to cross the tape in deep negative territory.

The S&P 500 Index (SPX) has cratered 9.9 percent over the past 30 days for a year-to-date return of -7 percent.

The Dow Jones Industrial Average (INDU) has dropped 9.7 percent over the past month for a -6.7-percent YTD return, while the tech-heavy Nasdaq Composite (COMP) is flashing a 30-day return of -10.2 percent and -4.6 YTD.

The dramatic end-of-year contraction officially ushered in a bear market after the S&P 500 fell more than 20 percent below intraday highs set on Sept. 21.

While the latest monster rally offers bulls some hope that the trend could reverse, a section of Wall Street warns that it would take an extended upward move for that to happen.

That view is further reinforced by the fact that the U.S. economy has been in the expansion phase for 37 quarters now, the second-longest in history.

We are in the early throes of a late-cycle, one that’s emblematic of an overheated economy poised to slip into a full-blown recession. During this stage, economic growth rates slow to stall speed against a backdrop of tightening credit availability, restrictive monetary policy and deteriorating corporate profit margins.

The performance of economically sensitive assets such as stocks tends to be strongest during the early-cycle before moderating and eventually declining during the late-phase and recession. In contrast, more defensive assets such as Treasury bonds typically enjoy their highest returns during down years for stocks.

(Click to enlarge)

Source: RBC Wealth Management

(Click to enlarge)

Source: Fidelity Investments

To counteract the “aging bull market” view, it’s worth noting that economic cycles do not simply die of old age.

Economic growth during the current expansion cycle has been far from robust, averaging 2.2 percent and well below the long-term average of 3.3 percent. That actually marks it as the weakest expansion since WWII.

Further, although the consensus is that we are in a late-cycle, real evidence actually supports the view that we are straddling a mid-and late-cycle. For instance, GDP growth during the second quarter clocked in at blistering 4.2 percent, the fastest in four years, and an above-average 3.5 percent during the third quarter. Although the economy is expected to slow down in 2019, decent growth is still expected over the next two years.

Sector Performance

Stock market performance by the 11 sectors of the U.S. economy has been mixed with a strong performance by the healthcare, utilities, consumer discretionary and information technology sectors offset by a weak showing by communications, materials, industrials, financial and energy sectors.

Here’s a rundown of how the different sectors have performed in 2018:

#1 Communication Services

Market Cap: $4.1T

Market Weight: 10.3%

YTD Returns: -16.7%

Industries:

  • Diversified Telecommunication Services
  • Entertainment
  • Interactive Media & Services
  • Media
  • Wireless Telecommunication Services

The Communication Services sector is made up of companies that provide communications services through fixed-line, wireless, cellular, high bandwidth and/or fiber optic cable network. The sector is mostly neutral during the mid-and late-cycles but tends to consistently outperform during recessions.

#2 Consumer Discretionary

Market Cap: $4.28T

Market Weight: 10.8%

YTD Returns:-1.56%

Industries:

  • Auto Components
  • Automobiles
  • Distributors
  • Diversified Consumer Services
  • Hotels, Restaurants and Leisure
  • Household Durables
  • Internet and Direct Marketing Retail
  • Leisure Products
  • Multiline Retail
  • Specialty Retail
  • Textiles, Apparel and Luxury Goods

The Consumer Discretionary sector encompasses industries that tend to be the most sensitive to economic cycles. The sector tends to strongly underperform during the late business cycle phase.

The Internet and Direct Marketing Retail Industry has been a standout performer with 24.9 percent YTD return.

#3 Consumer Staples

Market Cap: $3.13T

Market Weight: 7.9%

YTD Returns:-11.5%

Industries:

  • Beverages
  • Food and Staples Retailing
  • Food Products
  • Household Products
  • Personal Products
  • Tobacco

The Consumer Staples Sector comprises companies that are less sensitive to economic cycles. The sector tends to be neutral during the mid-cycle; outperforms during the late-cycle and consistently outperforms during recessions. Virtually all industries in the sector are in red territory.

#4 Energy

Market Cap:$3.05T

Market Weight: 7.7%

YTD Returns: -20.7%

Industries:

  • Energy Equipment & Services
  • Oil, Gas and Consumable Fuels

Companies in the Energy Sector are engaged in the exploration, production, refining, marketing and transportation of oil and gas products, coal and other consumable fuels. The sector is mostly neutral in the mid-cycle, consistently outperforms in the late-cycle and returns to neutral mode during recessions. Energy has been the S&P 500’s worst performing sector mainly due to a collapse in oil prices.

#5 Financials

Market Cap: $6.32T

Market Weight: 15.9%

YTD Returns:-15.5%

Industries:

  • Banks
  • Capital markets
  • Consumer Finance
  • Diversified Financial Services
  • Insurance
  • Mortgage REITs
  • Thrifts & Mortgage Finance

Financial Sector companies engage in banking, mortgage finance, investment banking, asset management, consumer finance, corporate, lending, financial investment, real estate investment trusts(REITs) and real estate management & development. The sector tends to outperform in the early-stage business cycle but tends to be a mixed bag in the other three phases. The sector has had a year to forget with nearly all industries suffering double-digit declines.

#6 Healthcare

Market Cap:$5.05T

Market Weight: 12.7%

YTD Returns: 3.26%

Industries:

  • Biotechnology
  • Healthcare Equipment & Supplies
  • Healthcare Technology
  • Life Sciences Tools and Services
  • Pharmaceuticals

In a sea of underperforming sectors, the healthcare industry has been a monolith of performance and one of the few sectors still in the green after the carnage. The sector tends to consistently outperform during the late-cycle and recessions though political rhetoric surrounding the Affordable Care Act is expected to continue fueling volatility.

#7 Industrials

Market Cap: $3.48T

Market Weight: 8.8%

YTD Returns: -15.8%

Industries:

  • Aerospace & Defense
  • Air Freight & Logistics
  • Airlines
  • Building Products
  • Commercial Services & Supplies
  • Construction & Engineering
  • Electrical Equipment
  • Industrial Conglomerates
  • Machinery
  • Marine
  • Professional Services
  • Road & Rail
  • Trading Companies & Distributors
  • Transportation Infrastructure

Companies in the Industrial Sector tend to perform well during the early-and mid-business cycle, turn neutral in the late-cycle and consistently underperform during recessions. Although global manufacturing activity remains positive, growth rates have slowed down with trade tensions between the U.S. and China taking a toll.

#8 Information Technology

Market Cap: $6.27T

Market Weight: 15.8%

YTD Returns: -2.5%

Industries:

  • Communications Equipment
  • Electronic Equipment, Instruments & Components
  • IT Services
  • Semiconductors & Semiconductor Equipment
  • Software
  • Technology Hardware, Storage and Peripherals

At nearly 25% of the S&P 500, the IT sector is the market’s largest component. After strong performance during the first half of the year, the sector tanked nearly 20% during the final three months of the year and now lies in negative territory.

Continue Reading Safe Haven >>>

Sharing is caring!

Safe Haven

At some point in your life you will want to, or be forced to consider an investment program. The main criteria in choosing one that is right for you is summed up in three words "Preservation of Capital". Sounds pretty simple doesn't it? Remember, "Investing is not Saving"! The mainstream media would lead us to believe otherwise and seldom comment on the risks inherent in equity ownership or debt investments. They are quick to point out the positive aspects of every news event with prepared soundbites of information. They provide simple, continual commentary on the respective markets to show they are up to date with the latest developments. They don't comment on developing trends until the trend is obvious to everyone; acting as cheerleaders for the greatest bull market of the twentieth century. A cautious and more reasoned approach is needed.