4 Bruised Stocks At Bargain Prices Set To Recover In 2019

While 2017 had been one of the most tranquil years in the market history owing to low volatility, the U.S. stock market faced a bumpy ride in 2018. To say that the markets have been volatile this year is an understatement. Since the beginning of the year, Dow Jones Industrial Average (DJI) gained almost 9% to reach a high of 26,951.81 on Oct 3. However, the upside was checked when the index lost momentum, thanks to domestic and global issues that plagued the market. Similarly, the S&P 500 index also tumbled into correction in October after hitting a lifetime high of 2,930.75 on Sep 20.

On an encouraging note, Trump’s tax reform policies have been boosting corporate spending, raising productivity for several industries along with fueling earnings growth and share buybacks. Moreover, low unemployment levels, job growth, and rising wages have uplifted consumers’ sentiment. Notably, consumer spending continues to be strong, having increased almost 4% in the third quarter of 2018.

However, these positive developments seem to be overshadowed by broader macroeconomic factors, straining the stock markets. Trade tussle, rate hikes, sluggish economic growth in China and Japan, declining oil, uncertainty over Brexit and slowdown in the Eurozone induced volatility in the markets. Hit by such odds, the DJI and the S&P 500 have lost 4.7% and 5.6%, respectively, so far this year.

Delving Deeper Into Stock Market Volatility in 2018

Below we provide an insight into the macroeconomic factors that weighed on the U.S. stock market this year. The year 2018 has been fettered by various issues, with a majority of the bruises being caused by rate hikes, U.S.-China trade disputes, along with a slowdown in China and Japan’s growth.  

Fed Rate Hike Rocks the Market: Notably, the market has witnessed three interest rate hikes so far this year, chiefly on the back of strong economic growth. While the rising rates have no direct impacts on the stock market, it does have a ripple effect that can eventually rock the market. A rise in interest rate raises consumers’ borrowing costs, making loans and mortgages expensive, as well as leaving the households with less disposable income, which eventually impacts profits and revenues of businesses. The rising rate also impacts other capital-intensive businesses that had cut down on their spending levels, resulting in the slowing down of the growth of such firms, with their stock prices taking a hit. There are speculations that another hike is imminent, which might further tighten financial conditions.

U.S.-Sino Trade Tussle: Intensifying trade tensions between China and the United States have weighed on the growth prospects of some major companies. With both the parties refusing to back down on the tit-for-tat tariff war since July, the trade tussle between the world's two biggest economies has been ratcheting up. The Trump administration, in July, had imposed tariffs on $34 billion in Chinese goods that led China to retaliate with tariffs on American products of equal value. Again in August, the United States and China levied a tariff on $16 billion worth of each other’s products. In September, Trump slapped a fresh tariff on $200 billion worth of Chinese imports, with Beijing announcing retaliatory tariffs on $60 billion of U.S. goods.

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