As we look back and reflect on another financial year I think it would be appropriate to begin this article with the frequently used caveat, “past performance is not a guide to future performance”, this was certainly the case for 2018. After one of the longest Bull markets in history this year saw the return of major volatility to Financial Markets. The technical definition of volatility is “a statistical measure of the dispersion of returns for a given security or market index”, in other words, major price swings in either direction. During 2018 we saw 17 days where the benchmark US Index, the S&P 500 moved 2% either up or down, just to put this in context, there were 0 such days during 2017. Overall it was the worst year for global financial markets since the 2008 recession, markets erased any gains that were made in early 2018 and finished the year at levels similar to those of Sept 2017.
Global Stock Markets have been the major beneficiary of the low interest policy since the global financial crisis. Now that interest rates have started to rise and monetary policy is beginning to tighten, investors are spooked as to how company profits will be impacted. The MSCI All-Country World Index, which is a benchmark Index for the Global Economy was down approx. 7% over the course of the year. Gains in the first nine months of the year were erased and then some in the final three months. The Global Index had gained 6.1% during the first three quarters of 2018, but stocks fell more than 12.0% in Q4 2018. The major Contributing factors were a potential trade war between the US and China along with The uncertainty around the negotiations of the UK’s exit from the European Union.
Let’s have a look at how some of the major market Indices performed throughout the year. In the US, The S&P 500 (-6.2%) Dow Jones Industrial Average (-5.6%) and Nasdaq (-3.9%) all had their worst annual performances since 2008.
European markets also posted their worst year since the 2008 crash with the benchmark Eurostoxx 50 Index down 11.3% for the year.
Britain’s blue-chip FTSE 100 index closed the year at 6,728 points, representing a fall of 12.5%, its worst performance for a decade.
Closer to home the ISEQ Index of Irish shares was one of the worst performing Indices in Europe. It declined by 20.8% during the year finishing at its lowest level since early in 2015.
Homebuilders and Banks were among the biggest losers during 2018. Housebuilders Cairn Homes and Glenveagh Properties each lost 44% and 42.3% of their values, respectively during the year, Banking stocks also weighed heavily on the ISEQ in 2018, with AIB falling by more than 33% and BOI losing 30% of its value, in line with the wider Financial sector across Europe. Only 2 of the ISEQ’s top 20 stocks recorded a positive return for 2018, nutrition group Glanbia increased by almost 10% while Kingspan recorded a much smaller gain of 1.7%.
In commodities the Crude Oil price was down 24.8%, the largest annual drop since 2015 while Gold which is a traditional hedge against equities also finished the year down 2.8% at $1,281/oz
Does all of this really matter though if you’re a long term Investor? The answer is NO.
As a long-term investor you should not be too worried about the short-term outlook and all of the market “noise”. The truth is that this type of volatility is not uncommon, it appears dramatic because we’ve just come through a remarkably placid period. Markets will average at least one -14% decline each year, market swill fall at least one out of every 4 years yet over the long run Equities will still outperform every other asset class.
The same basic rules apply as always, Before undertaking any form of Investment always carry out a thorough assessment of your risk profile and capacity for loss then Invest in a well-diversified portfolio.
Barry Kerr CFP® is Managing Director of Wealthwise Financial Planning who have offices in Leitrim & Galway, www.wealthwise.ie All details and views contained within this article are for informational purposes only and does not constitute advice. Wealthwise Financial Planning makes no representations as to the accuracy, completeness or suitability of any information and will not be liable for any errors, omissions or any losses arising from its use. Wealthwise Financial Ltd T/A Wealthwise Financial Planning is Regulated by the central Bank of Ireland #CI66141