2018 – Year in Review
Ed Murray
Ed Murray
Senior Stockbroker

It’s hard to believe we are coming to the end of another year – so looking back, what kind of a year has it been for markets? After a positive performance in equity markets for 2017, most markets were fast out of the traps in January only to stumble in February. Part of the sell-off related to strong US wage inflation data, raising concerns of US interest rates rising faster than expected. Just as markets recovered they were rocked again by fears of a global trade war between the US and China towards the end of Q1. Chinese markets fell 10% from their January highs.

Following on from a volatile Q1, political risk weighed on European markets as Italian largesse left Italian equities as a notable underperformer. The dollar rallied against most currencies, supporting the UK market to deliver strong returns in local currency terms, as foreign revenues were repatriated. Trade concerns again weighed on markets, dragging Chinese, emerging market equities and in particular European auto stocks lower. Emerging markets, with large current account deficits such as Turkey and Argentina, came under significant pressure in Q2 with sharp currency and equity market falls.

A booming US economy drove US stocks and Treasury yields higher in Q3, leaving US equities some way ahead of the pack over the year as a whole. US consumer confidence hit its highest level since 2000 and wage growth rose to the highest level since 2009, supporting retail sales growth. UK and Irish equities sold down by fears of a no-deal Brexit while the Eurozone remained under pressure as macro data continued to weaken, some of which was attributed to a sharp slowdown in exports to China. This risk combined with higher oil prices led to weaker domestic consumption in the region.

In the final quarter, earnings season was to the fore, with a high percentage of companies beating street estimates. Technology stocks sold off after cautious outlook statements from Apple and Amazon which led to risk-off sentiment impacting markets. Oil sold off dramatically, on global growth concerns and rising inventory levels, Brent crude has plunged by c.30% from its highs this year. While the EU approved the UK’s Brexit proposal – focus remains on the MP vote in the House of Commons which has now been postponed. UK domestic and Irish exposed stocks remain under pressure ahead of this.

Looking ahead to 2019, in such uncertain times, volatility is likely to continue as trade negotiations escalate, Brexit risk of a no vote may lead to UK elections or another referendum. Further elections across Europe, in particular Italy during the summer and tougher earnings comparisons to come next year. Asset allocation and stock selection will be key for the year ahead.

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