This isn’t how equity investors expected 2018 to wind down. Over the course of the year, corporate profits have been strong, the economy was booming, and US President Donald Trump’s tax cuts were supposed to trickle down, helping both consumers and companies spend more.
But as we enter the final week of 2018, the picture has turned decidedly ugly. During the past three months, fear and uncertainty have gripped investors, triggering a massive sell-off that’s wiped out about $5 trillion of global equity values and ‘gifted’ investors with a bruising day of trade on Christmas Eve, the market’s worst performance for that day in its history.
What’s different in this downturn is that buying the dip, a strategy investors employed to rescue this unprecedented bull run several times over the past decade, appears to no longer be in play. Some of the strongest growth stocks during the bull, such as Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB) and Google (NASDAQ:GOOGL) are likely to finish the year in the red.
The headwinds for social media giants Facebook, Google and Twitter (NYSE:TWTR), were especially powerful. Those companies were hurt by investor fears of government scrutiny and regulation after their platforms were used by US adversaries, such as Russia, to manipulate public opinion and allegedly the 2016 election. As well, reports of massive data breaches also raised public concerns about the longer term viability of these companies.
Apple, the iPhone and Mac producer that became the world’s most valuable company for a period during the summer and into the fall, remained immune to the problems social media companies faced. But during the last quarter, it succumbed to pressures created by the worsening macro environment as investors fretted that the iPhone growth supercycle is over, leaving future sales weaker if global growth slows and the US-China trade war escalates.
In the technology space, chipmakers who once benefited from the consumer frenzy for smartphones, video games, and a surge in demand from artificial intelligence firms and cryptocurrency miners saw their share values decimated on the first sign that peak demand is a thing of the past.
Chipmakers The Biggest Losers
NVDA Weekly 2016-2018
Nvidia (NASDAQ:NVDA), one of the largest chip producers and for years a Wall Street darling had, arguably, one of the most dramatic reversals. It saw its market cap surge from just $14 billion in 2016 to over $175 billion by September of 2018. Its share price has since been pummeled—currently down 54%—making it the worst performer in the S&P 500 over that stretch.
The nation’s largest energy stocks gave up most of their gains as well, after the rally that sent global benchmark Brent crude to above $86 a barrel in October quickly fizzled. Signs there was a glut of oil in the market, at a time when global growth is slowing, weighed on the commodity.
CVX Weekly 2016-2018
Fears of recession also helped turn investor sentiment against some still-strong energy stocks which continue to produce excellent cash flows after years of belt-tightening and enhanced production efficiencies. ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX), the two largest integrated energy producers, are ending the year with losses close to 25%.
In this market rout, however, not everyone was a loser. As volatility spiked and the macro environment worsened, investors turned to stocks which usually provide safety and income. Utilities, healthcare, and non-discretionary consumer stocks weathered this storm much better than many growth stocks.
Both Procter & Gamble (NYSE:PG), the multinational consumer staple manufacturer, and Merck (NYSE:NYSE:MRK), a global healthcare provider, are each up more than 15% over the past six months while the S&P 500 is down about 20% over the same period.
To date, the nation’s top bricks-and-mortar retailers, such as Walmart (NYSE:WMT) and the e-commerce giant Amazon (NASDAQ:AMZN) have also failed to sustain their rallies despite strong consumer spending that helped their growth repeatedly beat analyst estimates.
AMZN Weekly 2016-2018
Amazon shares, which at one point were up 70% on the year, have now fallen 34% from that level. The stock could easily finish 2018r with just low double-digit gains.
It’s hard to place the blame for the current poor performance of equities in 2018 on just one thing. Perhaps the biggest catalyst that prompted many investors to move to the sidelines, pushing markets into bear territory, was the worsening macro environment.
That included—and continues to include—the US-China trade war that threatens to put the brakes on global growth; the more hawkish Fed which says it will remain steadfast in its rate-tightening policy; and President Trump, who through his aggressive moves, often communicated via tweet, has kept investors jittery and uncertain about what’s next.