U.S. stocks closed their worst year since 2008 with a rally.
The S&P 500 (^GSPC) rose 0.85%, or 21.11 points, as of market close. The Dow (^DJI) advanced 1.15%, or 265.06 points, and shot up 137 points in the final minute of trading. The Nasdaq (^IXIC) edged higher by 0.77%, or 50.76 points, after briefly turning negative earlier in the session.
Despite Monday’s upturn, the three major indices closed the calendar year 2018 firmly in the red. As of market close, the S&P 500 was down 6.2%, the Dow was lower by 5.6% and the Nasdaq was down 3.9% for the year. The last time the indices closed a year lower was in 2008, when the S&P 500 fell 38.5%, the Dow slid 33.8% and the Nasdaq declined 40%.
Crude oil prices (CL=F) have also had a tumultuous 2018, posting their worst year since 2015. Domestic crude oil prices fell about 25% this year, turning around after jumping to a four-year high three months ago. Contracts for West Texas Intermediate crude oil rose 8 cents to $45.41 per barrel on Monday.
With risk assets pummeled in the fourth quarter of 2018, many investors have fled to so-called safe haven investments including gold (XAUUSD=X). The metal hit a high of $1,286.50 per ounce on Monday morning, the highest price since mid-June. And this year’s best-performing currency was the yen, also known for being a haven asset, which has outperformed both the pound and the euro as Brexit and Italy’s budget concerns weighed on the major European currencies. As of Monday, the yen was up more than 2.5% for the year at 109.88 per dollar, Bloomberg reported.
A fresh dose of optimism for U.S.-China trade relations helped send equities higher on the final trading day of the 2018 calendar year. President Donald Trump over the weekend wrote in a Twitter post that he “had a long and very good call with President Xi [Jinping] of China. Deal is moving along very well…Big progress being made!”
New data from China pointed to the ongoing trade war’s impact on sentiment and stimulus to the economy heading into 2019. The country’s manufacturing purchasing managers index dropped to an about two-year low of 49.4 in December as new orders and input and output prices weakened. Readings of under 50 indicate contraction.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., December 28, 2018. REUTERS/Jeenah Moon
Meanwhile, the U.S. government has entered its tenth day of a partial shutdown, with few signs of progress toward a deal that Congress and Trump would be willing to agree upon. Trump and congressional Democrats have been caught in an impasse over demands for $5 billion in funding for a southern barrier with Mexico, a central promise of Trump’s presidential campaign.
On Thursday, Nancy Pelosi (D-Calif.) is set to become Speaker of the House as Democrats take control over the House of Representatives. Congressional Democrats have been widely opposed to funding for the wall, and her challenge will be to pass a spending bill that appeases both her party’s and the president’s demands. Senate Majority Leader Mitch McConnell has said that his chamber will only vote on a deal that has all congressional leaders and the president’s support.
The stock market will be closed on Tuesday in observance of New Year’s Day.
2019 Outlook
2018 was a rollercoaster year for investors, but some analysts are optimistic that equities will push higher in 2019. John Stoltzfus, chief investment strategist for Oppenheimer, on Monday initiated a year-end 2019 price target for the S&P 500 of 2,960, or 16.9 times the firm’s 2019 earnings per share estimate of $175. The price target implies about 18% upside from the S&P 500’s closing price on Monday.
Stoltzfus noted that the fourth-quarter slide in stock prices dragged the S&P 500 below the firm’s previous 2018 price target of 3,000. He attributed the drawdown to factors including the trade war with China, fears about the direction of Federal Reserve monetary policy, a precipitous drop in the price of oil and concerns of domestic and international economic growth slowdown.
“With the last Fed decision of the year behind us and the market having gone through a dramatic pullback since, we believe that barring an appearance of a ‘black swan’ event, or the shock of a bolt from the blue, the worst of the declines experienced by stocks in 2018 are behind us,’ Stolzfus wrote in a note.
Other analysts are less optimistic about the year ahead in light of the recent downturn in equity prices. Chris Harvey, head of equity strategy at Wells Fargo Securities, reduced his 2019 year-end price target for the S&P 500 to 2,665 from 3,079 as of December 21. And Jonathan Golub, chief U.S. equity strategist Credit Suisse and previously the biggest bull on Wall Street, slashed his 2019 price target to 2,925 from 3,350 earlier this month. Each of these price targets, however, reflects upside from the S&P 500’s closing price Monday.
Some of the factors that have weighed on domestic equity prices the past several months are also lingering concerns for the broader economy heading into 2019, Jan Hatzius, chief economist for Goldman Sachs, wrote in a note Friday. Hatzius foresees a slowdown in U.S. growth for the first half of 2019 to 2% from 2.4%, and anticipates growth of 1.75% in the second half of the year.
“However, we are still not particularly worried about a recession,” Hatzius wrote. “In our view, a growth slowdown is necessary to ‘land the plane’ and the two key historical risk factors—inflationary overheating and asset market bubbles—remain largely absent.”
Hatzius noted that Trump’s economic agenda of expansionary fiscal policy and higher tariffs will likely remain prominent points in 2019, and he expects a further increase in tariffs on imports from China after the current halt on additional levies lifts in early March 2019.
In terms of monetary policy, Hatzius anticipates a probability-weighted 1.2 interest rate hikes in all of 2019, from 1.6 hikes previously. This is just below the Federal Open Market Committee’s own median forecast of two rate hikes for next year. But Hatzius made no changes to his forecast of continued Fed balance sheet runoff to about $3.5 trillion by earlier 2020, even despite the increased focus on quantitative tightening after the last Fed rate hike and monetary policy statement.
STOCKS: Amazon will reportedly expand Whole Foods locations, delivery
Advanced Micron Devices (AMD) was the S&P 500’s best-performing stock this year, posting a return of about 80% between December 29, 2017 and market close on Monday. Coty Inc., (COTY) a cosmetic brand based in New York City, was the index’s worst performer, with the stock down about 67% for the year-to-date.
Amazon (AMZN) is said to be adding more Whole Foods stores across the country to put more customers in its two-hour delivery service range, according to a report from The Wall Street Journal on Sunday. Following the expansion, Amazon’s two-hour delivery service Prime Now will be available at nearly all of its roughly 475 Whole Foods locations in the United States. People familiar with the matter told the Wall Street Journal that employees have visited potential retail spaces in the Rocky Mountain region, including in Idaho, southern Utah and Wyoming, where Whole Foods locations do not currently exist. Shares of Amazon rose 1.62% to $1,501.97 each as of market close.
Canada Goose’s (GOOS) first store in China drew major crowds at its opening in downtown Beijing on Friday. Earlier this year, the Toronto-based company had opened its first store in Hong Kong. The successful launch comes as Canada and China are embroiled in tensions over the arrest of the CFO of Chinese technology company Huawei in Vancouver in early December, leading some to call for boycotts of the North American company’s parkas. Shares of Canada Goose rose 4.6% to $43.70 each as of market close.
Berkshire Hathaway (BRK-A, BRK-B) is on track to outperform the S&P 500 for the third consecutive year, based on Friday’s closing prices. Shares of Berkshire Hathaway class A and class B shares were each about about 2% for the 2018 calendar year as of market close, versus the S&P 500’s 6% decline.
ECONOMY: Dallas Fed manufacturing activity index turned negative in December
Texas manufacturers’ perceptions of business conditions turned negative in December, according to a report Monday from the Federal Reserve Bank of Dallas. The general business activity index slid to negative 5.1 in December from positive 17.6, falling far below consensus expectations of a reading of positive 15 for the month. More than 20% of manufacturers surveyed said their outlooks worsened for the month.
Other indices captured by the Dallas Fed also deteriorated in December. The capacity utilization index fell to 7.6 from 9.4, while the shipments index declined to 6.1. However, the new orders index increased five points to 14.4, while the growth rate of new orders index rose to 5.8.
