The Markets so far in 2018

The third quarter of 2018 is over. Returns have been mixed, with the USA the standout performer.

For markets it has been an interesting nine months, with a fair slice of performance – good and bad – down to what has been happening in the USA, but what else would one expect with it being about 52% of the world market cap. The country has experienced three hikes in interest rates (with another still earmarked for December). On this side of the Atlantic, the Brexit process has rumbled on with no clear end yet in sight, while the Eurozone ended September with a renewed round of jitters about the financial profligacy of Italy’s populist government.

For all the noise, many markets are little changed across the first nine months of 2018, a fact illustrated by the graph of the Footsie for the year to date:


Source: http://www.londonstockexchange.com

Looking more broadly, the nine-month out turns are shown below:

 

29/12/2017

28/09/2018

YTD Change

FTSE 100

7,687.77

7,510.2

-2.31%

FTSE 250

20,726.26

20,307.04

-2.02%

FTSE 350 Higher Yield

 3,938.35

3,790.40

-3.76%

FTSE 350 Lower Yield

 4,212.72

4,187.71

-0.59%

FTSE All-Share

 4,221.82

4,127.91

-2.22%

S&P 500

2,673.61

2,913.98

8.99%

Euro Stoxx 50 (€)

3,503.96

3,399.20

-2.99%

Nikkei 225

22,764.94

24,120.04

5.95%

MSCI Em Markets (£)

1,602.28

1,503.51

-6.16%

MSCI ACWI (£)

709.58

752.18

6.00%

2-yr UK Gilt yield

0.49%

0.88%

 
10-yr UK Gilt yield

1.24%

1.46%

 
20yr US T-bond yield

1.89%

2.70%

 
10-yr US T-bond yield

2.42%

3.06%

 
2-yr German Bund yield

-0.53%

-0.51%

 
10-yr German Bund yield

0.42%

0.46%

 
£/$

1.3528

1.3041

-3.60%

£/€

1.1266

1.1227

-0.35%

£/¥

152.3883

148.1209

-2.80%

UK Bank base rate

0.50%

0.75%

 
US Fed funds rate

 1.25%-1.50%

2.00%-2.25%

 

ECB base rate

0.00%

0.00%

 

A few points to note from this table are:

  • The FTSE 100 has been on a rollercoaster ending up slightly short of where it started the year. Add in dividends – the yield on the FTSE 100 is now 4.01% – and the market produced a small positive total return.
  • The FTSE 250, regarded as a better yardstick for UK plc (although still with a weighting of overseas revenues of around 50%), has performed much the same as its FTSE 100 multinational counterpart. The problems of the retail sector have continued, along with Brexit uncertainties.
  • The US market performed strongly, helped by tax cuts and rising revenues. Rising interest rates and the vagaries of Donald Trump economic ‘policies’ seem to have passed the market by, witness the longest ever bull run for the S&P 500 recorded recently.
  • The Eurozone economies showed signs of losing momentum, with politics casting a cloud in Italy.
  • Emerging markets were the worst performers hit, as earlier in the year, by the rising US dollar and interest rates, with the most obvious victims once again Turkey and Argentina.
  • Bond yields have headed upwards over 2018 in the UK and US but remained flat in the Eurozone (excluding Italy). A fourth US rate rise is expected in December, with the next UK increase possible in February unless the inflation numbers improve and/or Brexit talks break down. The yield on 10-year US Treasury Bonds appears to be settling above 3% and is still close enough to the 2.7% 2-year bond number to keep some pundits watching for an inversion of the yield curve, followed by a recession.