Wall Street closed on a positive note on the last day of trading in 2018 following positive developments on the trade war front. All three major stock indexes ended in the green. However, last month was the worst ever December for equity markets after the Great Depression of 1931.
Likewise, 2018 as a whole was the worst ever year for U.S. stocks in a decade. Market volatility spiked significantly last year. A plethora of issues such as imposition of tariffs, concerns over the Fed’s monetary stance, several geopolitical conflicts, plummeting crude oil prices and expectations of global economic slowdown, kept investors shaky throughout the year.
The Dow Jones Industrial Average (DJI) closed at 23,327.46, gaining 1.2% or 265.06 points. The S&P 500 Index (INX) increased 0.9% to close at 2,506.85. Meanwhile, the Nasdaq Composite Index (IXIC) closed at 6,635.28, rising 0.8%. A total of 7.46 billion shares were traded on Monday, lower than the last 20-session average of 9.22 billion shares. Advancers outnumbered decliners on the NYSE by 2.42-to-1 ratio. On the Nasdaq, advancers had an edge over decliners by 1.81-to-1 ratio. The CBOE VIX decreased 0.4% to close at 28.34.
How Did the Benchmarks Perform?
The Dow ended in positive territory reversing its previous trading day’s losses. Notably, each of the 30 components of the blue-chip index ended in the green. The tech-heavy Nasdaq Composite ended in the green for the fourth successive day due to strong performance by the large-cap tech stocks.
The S&P 500 also ended in positive territory recovering from previous trading day’s losses. The Health Care Select Sector SPDR (XLV) and Consumer Discretionary Select Sector SPDR (XLY) gained 1.5% and 1.1%, respectively. Each of the Industrials Select Sector SPDR (XLI) and Financials Select Sector SPDR (XLF) increased 1%. Notably, all 11 sectors of the benchmark index closed in the green.
Positive Developments on US – China Trade Conflict
On Dec 29, President Donald Trump Tweeted that he had a "very good (telephonic) call" with Chinese President Xi Jinping regarding the lingering trade dispute between the two countries. He also said that progress toward a solution is “moving along very well.” Market participants enjoyed the news which resulted into strong showing by U.S. stocks across the board on Friday.
Consequently, shares of trade-sensitive stocks such as Travelers Companies Inc. (TRV - Free Report) and Caterpillar Inc. (CAT - Free Report) gained 1.3% and 1.2%, respectively. Caterpillar carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, The Wall Street Journal reported that Trump’s statement may be an exaggeration. The report cited unnamed sources, to claim that several top ranked U.S. officials are doubtful about fining an amicable solution unless China agreed to most of the U.S. demands related to trade imbalance and intellectual properties.
Wall Street witnessed its monthly worst performance this year in December. All three major stock indexes – the Dow, S&P 500 and Nasdaq Composite – finished in the red. The Dow and S&P 500 lost 8.7% and 9.2%, respectively. Both indexes witnessed their worst December since 1931 and largest monthly decline since February 2009. The Nasdaq Composite lost 9.5%. The S&P 500 swung more than 1% in either direction nine times in December alone.
The recent rate hike and Fed’s tight monetary policy, partial government shutdown, conflicting news related to trade war between the United States and China and concerns of a global economic slowdown have significantly dented investors’ confidence.
In the fourth quarter of 2018 also – the Dow, S&P 500 and Nasdaq Composite – ended in the red. The S&P 500 and Nasdaq Composite plummeted 14% and 17.5%, respectively. Both indexes posted their worst quarterly decline since the fourth quarter of 2008. The Dow shed 11.8%, marking its worst quarterly performance since the first quarter of 2009.
Despite gains in November, all three major indexes plunged in both October and December due to yield curve inversion, crude oil prices plunge, ambiguities over future interest rate policy and lingering tariff related problems with China. Notably, crude oil prices crashed 38% in the fourth quarter of 2018.
Wall Street posted its worst ever yearly performance in a decade. Market volatility which first appeared in February following investors’ concerns about hyper-inflation aggravated in March, as a result of the trade conflict between the United States and China.
Although Wall Street had a relatively smooth run in the next six months, the situation worsened significantly in the last three months of the year fueled by a plethora of factors. These include – yield curve inversion, the rate hike and the Fed’s tighter monetary stance, conflicting news related to trade war between the United States and China and concerns of a global economic slowdown.
Extreme volatility marred investors’ confidence in risky assets like equities. The Dow, S&P 500 and Nasdaq Composite – plunged 5.6%, 6.2% and 3.9%, respectively, in 2018. All three major stock indexes recorded their worst ever yearly performance since 2008.
The Dow and S&P 500 posted their first yearly losses in three years while Nasdaq Composite also ended in negative territory, reversing a six yearly winning run. All three indexes ended the year in the red despite gaining in the first three quarters. For the Dow, this happened first time since 1978. The S&P 500 and Nasdaq Composite experienced this phenomenon for the first time since 1948 and 1987, respectively.
Ultimately, 2018 will be recognized as a year marked by extreme volatility. The benchmark S&P 500 swung more than 1% in either directions 64 times. The Dow has swung more than 1,000 points in a single session only eight times in its history, five of which happened in 2018 alone.
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