As the closing bell rang on Wall Street at 4:00 p.m. last Friday, it marked the end of the third quarter 2018. Let’s take a look back at the year so far.
Throughout 2017 the S&P 500 Index did not experience so much as a 3% pullback and January 2018 was one of the best months ever. At the end of January this year we wrote the following in our monthly commentary:
January was one of the best months for the stock market on record. The kind of strength we saw in the first month of the year often provides the momentum to finish the year well. But it is important to note that does not mean a year without its ups and downs. History shows that in many years with a great January, there were significant declines before ending in the positive.
The first week of February abruptly changed the direction of the market. By the close on February 9th the market had lost over 12% from its intraday peak on January 26th. The market gave triple digit swings in both directions throughout the month of March. The first quarter of 2018 was the first losing quarter since 2015.
During the 2nd quarter the economy continued to strengthen and small cap stocks and the NASDAQ put in new highs. Economic numbers published in August were strong. GDP grew by 4.2% in the 2nd quarter. Unemployment is at an all-time low, corporate profits are increasing, as is consumer spending.
It was August when the S&P 500 and the Transports went to new highs, but the Dow Industrials lagged, only surpassing its January high in the third week of September. While the Dow was moving up in September, the other indexes gave back some of their gains.
Notable in September, the Federal Reserve voted to increase short term interest rates by ¼ of 1%. This is the third increase this year and Chairman Powell signaled another increase is coming before the end of the year bringing the total to four this year as well as four increases anticipated in 2019.
As we reflect on the quote from our January commentary, we surely have experienced the volatility and the declines which often follow a strong January. With the mid-term election, a Supreme Court Justice in a heated battle, trade negotiations with China up in the air, and negotiations to de-nuclearize North Korea there is more than enough to derail the market even in a hot economy.
Based on the evidence thus far, we are in the bullish camp at this writing. Only time will tell if the market will push forward and end on a positive note.