As it stands now in the last few trading days of 2018, major stock indices around the world, and particularly in Europe, Britain and North America, are on course to end the year in a spectacularly dismal fashion. The New York Stock Exchange (NYSE) will look to have its worst performance since 2009, the Nasdaq closed on Friday at its lowest level in 15 months, while London’s FTSE has given back all the gains it made in the past two years.
Yes, markets go up, markets go down. But what is surprising is the speed at which this decline has happened given that just six months ago, it seemed as if the NYSE was capable of but one trajectory — strong upwards. And yes, it is indeed worth remembering that stock market indices are a reflection of investor intent, rather than the overall fundamentals of the market.
If the economy were a human body, it would be fair to suggest that markets were the nervous system — sensitive to the touches, smell, sights, tastes and sounds — while true economic sentiment would be the brain: More reasoned thought about what is actually happening. And right now, all the senses of investors point to things simply not adding up when it comes to returns on their monies.
Savvy investors play the long game — and historically, markets do indeed vector upwards, but there are squeaky times such as now. Those savvy investors who can play the long game should do so for indeed markets do go down — and they go upward more so. But why this current volatility? And why now at the end of what should have been a pretty good year?
Simply put, there are a lot of factors that together combine to make the perfect storm for investors. The United States Federal Reserve has increased its base rate by .25 per cent, and is indicating it will do so again soon, a move that makes other forms of investment more attractive — particularly for corporations with a lot of cash on their balance sheets.
US President Donald Trump’s trade policies and tariff wars with China are beginning to affect US firms that are tied to China in either goods or plants in a highly globalised marketplace — and those tariffs are hitting US producers and US jobs. His foreign policy choices aren’t inspiring confidence either.
There is concern too over Brexit, and the uncertainty that it will unleash in the coming months. And Apple, Facebook, Amazon and Google are so big now that any losses there are magnified across the broader market. What goes up, goes down — and goes up.