Bristlecone Blog

Global equity markets suffered significant losses during the 4th quarter, which dragged down stock returns across the board for the full year. Our clients’ portfolios, most of which include an allocation to bonds, declined somewhat less. Still, 2018 was unusual in that almost every major investment category experienced a negative total return. The exceptions were cash, US Fixed Income, and TIPs (note: your portfolio’s allocation and results may differ—please refer to your Quarterly Portfolio Review Report).

This year is so different from last. In 2017, US stocks marched upward each and every month. International stocks delivered even higher returns, making up partially for some years of underperformance. While short-term interest rates were pushed upward by policy makers, longer-term rates were very steady, leading to good bond returns, too.

Domestic stocks rebounded in the second quarter–led by small cap, energy, and technology shares—but the broader S&P 500 index still ended the quarter below its January peak (up less than 3% for the year). Investor sentiment during the first half was mixed. Initially, optimism abounded that the stimulative impact of last December’s tax cuts, combined with the longest monthly job expansion on record, would push stocks higher. Subsequently, rising geopolitical tensions and escalating trade disputes have clouded the picture, and increased the potential for negative unintended consequences.

In American politics, there is a clear separation between Democrats and Republicans on the subject of whether corporations deserve the same rights as citizens. Where both parties appear to agree lately though is when it comes to extracting big fines from them. The number of billion-dollar fines grew from zero in 2010 to nine in 2016. The 1st few months of the Trump administration saw four settlements of over $1 billion each. The current President, despite touting his pro-business credentials, was very happy to follow the prior administration’s footsteps saying on Twitter in February that fines and penalties against a bank, Wells Fargo, would be “pursued and, if anything, substantially increased.” So the recent news that the bank got fined $1 billion did not come as a surprise.

Global capital markets appreciated virtually across the board in the 4th quarter, capping off a strong year for investor returns which saw domestic stock indexes once again close near record highs—boosted by U.S. tax reform legislation passed in late December.

If you feel like “déjà vu all over again,” to quote Yogi Berra, you’re not mistaken: US and international stocks rose during the 3rd quarter, bringing returns in the high teens over the past year, including dividends. Here at home, the stock market’s performance is underpinned by favorable fundamental factors: interest rates and inflation remain low, and growth in per-share earnings remains robust, at about 10% to 12%, year-over-year.