What's going on?
2018 was a rough year for investors. Markets rose to record highs in September – but from October on, it was red dead redemption all the way. That selloff left US stocks down 9% and European stocks down 15% for the year.
What does this mean?
It all started so well: low unemployment nudged consumer spending higher, while company profits got a boost from cheap borrowing and tax cuts. But as 2018 wore on, investors started to fret. The escalating US-China trade war made getting products across borders more expensive for companies, while rising interest rates meant borrowing money was no longer as cheap.
But the big dip that would eventually wipe out stocks’ entire 2018 gains (and then some) began when investors’ darlings – large tech companies – started to falter in their pursuit of ever-higher growth. In the brave new world of single-digit profit growth predictions, these companies’ lofty valuations no longer seemed quite so appropriate – leading investors to sell, sell, sell.
Why should I care?
The bigger picture: Emerging markets rocked and rolled this year.
A strong US economy and rising interest rates pushed up the dollar’s value: as cash in US accounts offered higher interest, demand for dollars rose. This hurt emerging markets by making their dollar debts more expensive relative to local currencies. But as the US economic growth outlook dropped, the US dollar fell with it – giving emerging markets a bit of a boost.
For you personally: It could be time to snag a bargain.
“Dollar-cost averaging” is a popular way to buy stocks over an extended period (weeks or months, say). An investor effectively pays the average price over that period, rather than the price on any given day – and if they’re spending the same amount every time, they naturally purchase more stocks when prices go down and fewer when prices go up. Since stocks’ prices generally rise over the long term, investors buying now could be in line for profits down the road.