Top 5 investing highlights from 2018

We’re all getting used to me going for extended periods without writing a blog post.  I’m sorry about that, but I’ve had a consulting job for the past couple months that has been keeping me busy.  It’s starting to wind down, so I should have more time to consistently write posts.  As always, thank you for sticking with me.

 

Wow!!!  It’s been a crazy few months in the stock market since I’ve been gone.  I figured for my first blog back I would give you my list of the craziest/most interesting things to happen in the investing world the past few months.  Some of these deserve their own post, so we can dive deeper into those in future posts.

Without further adieu, here are my Top 5 investing highlights since April:

 

5. Interest rates on the rise: 2018 has been the year of the interest rate increase by the Fed. In response to the 2008 financial crisis, the Fed cut interest rates to nearly 0%.  There they stayed for nearly the entire 8 years of the Obama administration.  It was only in December of 2015 that the interest rate was raised to 0.5%.

Since 2015, there have been 7 rate increases (including 3 so far in 2018), bringing the Fed rate to 2.25%.  This stuff makes finance nerds giddy, but it does have real-life impacts on the rest of us.

I think the biggest direct impact is that mortgage rates have started to go up.  Now a 30-year fixed mortgage is at about 5%.  A couple years back it was at 3.5%.  That’s a major change that could mean hundreds of dollars per month on a families mortgage.  This impact stretches to housing affordability (gets worse) and number of families refinancing (goes down).

 

4. Massive tax law passes: I know the big tax law passed in December 2017, but I feel a lot of the ramifications hit in 2018. By mid-year it seemed the impact was starting to hit the market—GDP growth was higher than it had been in a really long time, unemployment was lower, and because of the low unemployment inflation had kicked higher.

The immediate impact of the tax break had a major boost to the markets in late December and early January.  Then there was a huge market drop in late January and early February.  However, it seemed that the benefits of the tax breaks (higher GDP, lower unemployment) started boosting stock, with the US markets hitting all-time highs in September.

Obviously, since September stocks have been on a major slide, but we’ll leave that for reason #1.

 

3. US elections in November: Politics are different from investing, but obviously they are connected. The soap opera that is Washington DC hit a fever pitch on November 6, with an unusually high amount of drama for a off-election.

Republicans increased their majority in the Senate, while Democrats gained enough seats in the House of Representatives to take over that chamber of Congress.  The headline was obviously that the US would have a split government for the next two years.

Pundits spent innumerable hours debating the impact split government would have on the nation broadly and the investing markets in particular.  The common thinking is that split government is a good thing in that government can’t make major changes, giving some level of predictability for business.  I tend to agree with that.  In fact, when you look at the data, the stock market does best with a split government.

In case you were curious, the market was up 2.1% the day after the elections, so clearly the markets liked the outcome of the election.

 

2. America is #1: I had a blog on this a while back, but I’m still fascinated by this phenomenon. As of now, US stocks are down 2.2% for the year while international stocks are down 14.2%.  That’s a 12% difference!!!  That’s huge!!!

Curiously, they stayed fairly coorelated all the way through April.  Then, starting in May, they really began to diverge.

The reasons aren’t entirely known.  Many people have many opinions, and I imagine this will be examined for years.  However, my belief is it’s a combination of the US winning the trade wars, China’s economy slowing down, and Europe figuring out Brexit and the future of the EU.

Who knows if I’m right or wrong.  But certainly this is interesting.

 

1. The rollercoaster that is the stock market: It has been a wild ride all of 2018.

January started out on fire, then the stock market took a huge dump in February, rallied towards the end of the month, fell again in March, then plodded out a 8-month upward march that peaked in September, and has since fallen to its current levels.

Those a 6 distinct moves, all of which are major.  I’ve talked about how I think volatility is becoming more inherent in the market, so I think that’s a piece of it.  But the change of directions this dramatic is definitely an unusual twist.

And we still have a month to go.  Stay tuned.

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