The Multi-Asset Process

December 2018 Market Review

Hopes for the traditional Santa rally to end 2018 on a high – or at least sweep away some of the recent clouds – were dashed in December and most indices ended the year down.

With Brexit adding its considerable weight to trade war concerns, the UK was among the hardest-hit regions over 2018, with the FTSE 100’s near 13% decline its worst showing since 2008. Other markets around the world also ended the year in the doldrums, dragging the MSCI All Country World Index to an 11% annual loss – again, its worst in a decade.

Even the US, which managed to keep rising for much of the year while most of the world struggled, caught the general malaise in the final months: keeping up the pattern of the worst year since 2008, the S&P 500 limped to a 6.2% loss as 2018 came to an end.

The reasons for this weakness are well known – suffice it to say that sentiment remained fragile throughout the month, although the three-month trade ceasefire between the US and China at least meant some let-up on the rhetoric front. In its place, however, came another in a long line of government shutdowns in the US, which began on 22 December and stretched into the New Year: no one who has watched the Trump administration over the last two years will be surprised to find funding for the Mexico-US ‘wall’ at the root of this latest row and we wait to see how long it takes to get the system moving again.

In one piece of positive news over the month, Italy’s government pledged to lower its deficit target from 2.4% to 2% in an attempt to end its standoff with the European Union, which led to a rally in the country’s bonds.


Elsewhere on the macro front, amid a flurry of abuse from the White House, the US Federal Reserve raised interest rates again in December, its fourth hike in 2018. Recent market weakness has led to questions – and hectoring from the President –  about whether the Bank will maintain its policy tightening course and a couple of recent speeches potentially hinted at a slight softening.


Fed chair Jerome Powell has said rates are currently just below the range the Fed considers neutral and this came just weeks  after he claimed the Bank was “a long way off” that level, comments that many believe played a large part in the Red October falls. Alongside its final hike announcement in December, Fed officials said they now forecast two rises in 2019, down from the three previously projected, although they continued to stress that further "gradual" increases are appropriate.

If market falls continue, it remains to be seen how long the Bank will hold this line: rumours are already circling that Trump may ramp up his vitriol and is actually discussing his desire to dismiss Powell with aides.

Across the Atlantic, the European Central Bank (ECB) confirmed the recent loss of growth momentum has not been substantial enough to stop plans to end the €2.6tn stimulus programme in January. ECB President Mario Draghi noted disappointing eurozone growth since the summer but dismissed fears the Bank may be cutting support at the worst possible moment. Rising uncertainty did force the ECB to downgrade its outlook for the currency bloc for 2019 however: current forecasts are for growth of 1.7%, weighed down by geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility.

Coming finally to Brexit, we end 2018 largely as we started it: a full 12 months of debate, resignations and headlines have got us no further towards knowing how the UK’s exit might look in practice. As things stand, we appear at an impasse: Theresa May has survived a vote of no confidence but cannot get her deal through parliament and the EU seems unwilling to grant any concessions.

We are now in a position where even the one ‘certainty’ that the UK would leave the EU on 29 March 2019 is no longer definite and all possibilities - including no deal, May’s deal, extending the deadline, a “people’s vote” and not leaving at all - appear possible.

As we have continued to stress through recent market weakness – and during any period of correction – we take a long-term, diversified approach to running multi-asset portfolios and try to avoid short-term noise as far as possible.

Predicting anything for 2019 with certainty is all but impossible although we believe that while markets are moving into the latter stages of the cycle, leading indicators are not signalling imminent recession and global economic growth should still surpass the post-financial crisis average. As ever, we look to buy our favoured markets cheaply wherever possible and recent months have provided ample opportunity to top up positions in Asia and emerging markets, where we continue to believe prospects are attractive if you look past immediate concerns.

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Please remember that past performance is not a guide to future performance and the value of an investment and any income generated from them can fall as well as rise and is not guaranteed, therefore you may not get back the amount originally invested and potentially risk total loss of capital. 

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Friday, January 11, 2019, 4:35 PM