I wanted to begin the year with a look back at 2018, hopefully answering some of the questions readers may have around recent market volatility, the world economy and general market perspective.
2018 Equity market highlights
After logging strong returns in 2017, global equity markets delivered negative returns in US dollar terms in 2018.
Common news stories in 2018 included reports on corporate earnings, the implementation of Brexit and US trade wars with China and other countries.
Global equity markets delivered positive returns through September, followed by a decline in the fourth quarter. Understandably the decline has many investors wondering how equities may perform in the near term.
Global equity markets, as measured by the MSCI All Country World Index, ended the year down –9.4%, with significant dispersion by country.
US equities generally outperformed other developed markets for the year. The S&P 500 Index recorded a –4.4% total return for the year and –13.5% return in the fourth quarter.
The MSCI World ex USA Index, which reflects non-US developed markets, was down –14.1% for the year and –12.8% for the fourth quarter, and the MSCI Emerging Markets Index fell –14.6% for the year and –7.5% for the fourth quarter. US small cap stocks, as measured by the Russell 2000 Index, returned –11.0% for the year.
While markets around the world generally had negative returns in the fourth quarter, the dispersion in their returns highlights the importance of global diversification.
46 out of 47 countries were down for the year. Using the MSCI All Country World Index (IMI) as a proxy, no countries posted positive returns among developed markets, and only Qatar managed a positive return among emerging markets.
As is typically the case, country-level returns varied significantly. In developed markets, returns ranged from –24.1% in Belgium to 0.0% in New Zealand.
In emerging markets, returns ranged from –41.3% in Turkey to 27.1% in Qatar.
The increased market volatility in the fourth quarter of 2018 underscores the importance of following an investment approach based on diversification and discipline rather than prediction and timing.
2018 proved the difficulty of predicting the performance of markets, and the need to stay disciplined to effectively pursue long-term returns.
While we cannot control markets, we can control how we invest.
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