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Capital Market Recap – December 2018

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SUMMARY

  • U.S. equities saw a steep decline in December and ended 2018 in negative territory. Optimism in business confidence fell to levels not seen since October 2016 as growth of new manufacturing orders slowed and demand fell.  Consumer confidence remained strong but experienced back-to-back declines in November and December mainly due to concerns of slowing economic growth in 2019.  Real GDP decelerated in 3Q (3.4%) compared to 2Q (4.2%).  A dip in exports and consumption contributed to the slowdown.  The unemployment rate remains low at 3.7% and average hourly earnings increased by 3.1% during the year.
  • International and emerging market equities posted negative returns in December. Although still in expansion mode, manufacturing production in the Eurozone experienced the worst quarterly performance since the second quarter of 2013.  U.K. manufacturing saw improvement during the month, though the increase is thought to be due to stockpiling inventories and new orders for the potential negative impact of Brexit.  In China, manufacturing entered contractionary territory in December as new business fell for the first time in two and a half years.
  • Fixed income investments were positive for the month, except for high yield bonds. The 10-year Treasury yield began the month at 3.0% and ended the month at 2.7% as investors moved into less risky investments.  The Federal Reserve increased the fed funds rate in December, the fourth increase in 2018.  The Fed projects two additional rate increases in 2019.

U.S. EQUITIES

  • Broad U.S. stocks were negative (down -9.3%) for the month and on a year-to-date basis (down -5.2%).
  •  Size – Small-cap (-11.9%) equities underperformed large-cap (-9.1%) and mid-cap (-9.9%) equities during the month. Large-cap stocks continued to lead on a year-to-date basis over small-cap stocks (-4.8% vs. -11.0%).
  • Style – Growth stocks (-8.8%) outpaced value stocks (-9.8%) in December as well as on a year-to-date basis (-2.1% versus -8.6%, respectively).

S&P 500 SECTOR RETURNS FOR DECEMBER 2018:

LOOKING AHEAD

  • With 2018 behind us, we expect market volatility to continue throughout the new year. A globally diversified portfolio invested in stocks and bonds can smooth out a bumpy ride during the later stages of this economic cycle.
  • We encourage investors to maintain adequate cash reserves for near-term needs and stay focused on fundamentals of long-term investing and the benefit of diversification.
Sources: Morningstar, Inc., Barclays Capital, Russell and MSCI, U.S. Bureau of Labor Statistics, The Conference Board, IHS Markit, The Federal Reserve (central bank of United States), The Bureau of Economic Analysis (U.S. Department of Commerce) & U.S. Department of Treasury

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All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. The team and HighTower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed are solely those of the team and do not represent those of HighTower Advisors, LLC, or any of its affiliates.