Form Brexit to trade wars, nothing has been plain-sailing about 2018.
Its been a year of peaks and troughs across all major markets, so lets have a look at the big moves of the past 12 months.
Tech in turmoil
This was the year when the tech giants raced to become the first ever $1 trillion company, with Apple winning the title in August.
But it was also the same year that the big technology giants – Facebook, Amazon, Apple, Netflix and Google (or Faangs) – saw an end to their reign as the kings of growth, serving as a reminder that what goes up, must come down.
“Faang stocks entered the year as the darlings of the global stock market, being apparently impervious to any possible downside risks and encapsulating everything that was good about the US economy,” says Rebecca OKeeffe, head of investments at Interactive Investor. “Such unbridled optimism is seldom a good thing, and so it has proved in 2018.”
They might have peaked in the summer, but Faangs started running into difficulties in the second half of the year as they grappled with tougher regulation and higher taxes. Theyve also started to feel the effects of the tariffs imposed by President Donald Trump, which has increased the cost of manufacturing goods in China.
“As a result of these growing challenges, the Faang stocks endured a torrid second half of the year. Facebook and Netflix dropped almost 40 per cent from their summer highs, while Apple and Amazon lost a quarter of their value relative to their summer peaks.”
OKeeffe adds that this has been hugely relevant to mainstream investors because almost every popular global fund and trust has large holdings in US technology companies.
Autumn was a good time for US equities, with the S&P 500 and Dow Jones both reaching peaks during September and October respectively. But the indices have been on a downward slope since, and its thought that markets are now in a much-needed correction.
Maurice Harari from SYZ Asset Management says that the recent moves are a “healthy rebalancing” act. “Assets that so far proved more resilient to the US monetary policy normalisation cycle – such as US equities, growth stocks, and the technology sector – saw a more severe adjustment,” he says.
Many big companies (particularly those that need to borrow) are now feeling the effects of higher US interest rates, while investors turn to the bond market for better returns. And with the Federal Reserve set to raise rates again next year, the picture is beginning to look less rosy for the US stock market.
While President Trump's tax cuts have served as a boost to US companies, much of the momentum disappeared with the midterms in November when he lost the House of Representatives. Fund Expert's Brian Dennehy says this opened up a range of "nasty possibilities".
"This will get worse in 2019 as the sugar rush from the tax cuts and regulatory reforms wear off," he says. "Trump also faces an endless onslaught of investigations, real and threatened, in 2019."
The professional investor says the cracks are not just appearing in Wall Street, but are now apparent in housing data and car sales. "The Trump approval rating will struggle to hold up if the domestic economy slows markedly," he adds.
Nations at war
Tensions between the worlds two largest economies reached worrying heights this year, after the US slapped China with trade tariffs, only for China to slap back.
While the Chinese and American presidents both agreed on a 90-day truce earlier this month, the situation has served as a kick in the teeth for emerging markets.
“If you thought it was tough for UK equities this year, spare a thought for emerging markets, which have been grappling with the triple whammy of trade war jitters, US dollar strength, and rising interest rates,” says Moira ONeill from Interactive Investor.
Yet, despite the obvious difficulties, Harari points out that most emerging market economies entered the year in much better financial shape than a few years ago, with improved fiscal positions, less imbalances, and more structural reforms in place.
The political upheaval in Italy has sent shockwaves across Europe, and prompted a decline in the continents main stock markets.
With the new Italian government wrangling with the European Commission over its proposed budget, Will Hobbs, head of investment strategy at Barclays Smart Investor, points out that this scuffle has seen interest rates on Italian debt soar.
“The last few weeks has seen signs that the new Italian coalition may be listening to the market forces a little more attentively, presenting the Commission with increasingly less jarring spending plans,” he says.
“We have long argued that the capital markets are an underestimated disciplinary force. In the end, the more heavily indebted a government is, the less leeway the politicians have to indulge the expansive fiscal gestures that may have helped them into office.”
The FTSE fall
The FTSE 100 started off this year in high spirits, and reached record levels in May. But the index has been on a bit of a downward slope since then, and is now down by about 10 per cent for the year as investors have been pricing in political turmoil.
Richard Hunter, head of markets at Interactive Investor, says this shows how quickly sentiment can change. “With institutional international investors running scared, the term uninvestable still rings in my ears,” he says, pointing out that even cash is ranking higher than the FTSE 100.
Yet with the FTSE 100 currently yielding an average of 4.5 per cent, Hunter says that theres a “pretty decent carrot being dangled” in front of patient investors.
“Its from a good crop too, given the number of world class companies largely immune from UK political uncertainty, it may well be worth hanging on in there.”
But if theres just one thing to take from 2018, its that the higher markets go up, the further they have to fall.