What’s Driving The Market Whiplash?

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On the latest edition of Market Week in Review, Mark Eibel, director, client investment strategies, and Research Analyst Brian Yadao discussed 2018 market performance, the ongoing volatility in markets, the U.S. jobs report for December and projections for fourth-quarter earnings season.

2019 growth projections: The cause for the Q4 market selloff?

Looking back at 2018, Eibel noted it was an unusual year for U.S. equities, with three-quarters of mostly positive returns, followed by a stomach-churning fourth quarter that saw the S&P 500® Index tumble 14%. The fourth quarter selloff occurred despite solid economic data and near-record low unemployment rates in the U.S., Eibel said, leading many to wonder why returns took such a hit.

“2018 is a great lesson in how the market is typically a forward-looking mechanism,” Eibel stated, “with investors often concerned more about what’s coming down the pike than what’s happening in the here-and-now.” The fourth quarter of 2018, he said, showed that markets were looking ahead to 2019 and the projections of a slowdown in economic growth and corporate earnings that accompanied it. Likewise, much of the market gains in 2017 were likely driven by the stellar growth forecasts for 2018, he said.

New year, same story: Volatility continues in markets

To say 2019 has kicked off on a volatile note in markets would probably be a bit of an understatement, Eibel said, noting the rollercoaster ride for stocks included a 660-point drop in the Dow Jones Industrial Average on Jan. 3, followed by an approximately 700-point gain as of midday Jan. 4.

So, what’s responsible for the continued whiplash? The same host of issues that plagued investors through much of last month, Eibel said. “From a market perspective, it’s essentially December 35th,” he quipped, “as trade talks between the U.S. and China, U.S. Federal Reserve monetary policy, the partial government shutdown in the U.S. and the Brexit saga continue to hound markets.” In other words, there’s a tremendous amount of information for markets to process, he said. Projections of a slowdown in the U.S. economy—Eibel and the team of Russell Investments strategists expect GDP (gross domestic product) growth of roughly 2.2% or 2.3% this year—only further compound matters, he added.

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