A white-knuckle ride on the markets – and more to come

It’s been a year of historic highs and lows on the stock markets, with intense volatility marking the final week of the year, the worst December for stock markets since 1931.

Political uncertainty stemming from US President Donald Trump’s government shutdown and a standoff with the Federal Reserve chair Jerome Powell over rate hikes have contributed to this year’s swings.

The lack of any resolution around Brexit and the US-China trade situation haven’t helped.

But on Wednesday markets rallied, the Dow Jones surging an astonishing 1086 points, its biggest ever point gain after four consecutive days of losses. Both the Nasdaq and the S&P 500 were up 5.8 and 5 per cent respectively.

However, the US rate hikes in particular have companies and investors spooked. The Fed raised interest rates from 2.25 per cent to 2.5 per cent this month, the fourth hike this year.

After a decade of free money, which has driven a concurrent bull market, companies that have financed their growth with debt, including the Trump Organisation, are now having to pay out more to service those debts.

Closer to home, China’s slow growth rate is another factor in skittish markets. The globalised economy means that if China slows down, it will have knock-on effects across the board and certainly in Asia-Pacific. Companies and investors are watching carefully.

Things are a little smoother domestically.

The NZX 50, which tracks New Zealand’s 50 biggest stocks, has had less exposure to the changing tides of global events due to more inward-focussed and defensive listings, like Genesis, Meridian and Trust Power, which have all been fairly stable of late.

‘‘If you go back to the companies that are listed on the NZX 50, a good chunk of that index is made up of companies that are purely domestic in scope,’’ said Grant Davies, investment adviser at Hamilton Hindin Greene.

‘‘When you boil it down many of them aren’t going to be impacted by the trading activity.

‘‘The other side of that is that in New Zealand we haven’t seen any rise in interest rates. There’s still a chance that rates could be cut in 2019, so it’s giving more support to those dividend stocks.

‘‘They’ve [Reserve Bank] still got one eye on house prices and keeping them under control and we’re not seeing any real inflation in New Zealand.

‘‘If you want to compare, the S&P 500 is still down for the month of December, whereas the NZX 50 is pretty much flat, down 0.5 per cent.’’

New Zealand is not immune, however. When the NZX 50 reached an all-time high of 9375.97 in September, it was following record high surges in the S&P 500 and Nasdaq.

Davies said the September rally was due to a ‘‘combination of reasonably strong corporate earnings and low interest rates,’’ but ‘‘all international markets were hitting highs . . . Trump’s tax cuts helped.’’

Looking forward to 2019, there is no sign that things will settle down.

Perhaps after the three-month grace period that Trump has given China to come to the table with more agreeable trade terms, markets might stabilise. But with a March deadline for Brexit looming, and more political surprises from Trump a near inevitability, investors aren’t likely to be feeling comfortable.

‘‘Looking into the next year, it’s time to assess your appetite for risk,’’ said Davies.

Websites such as sorted.org.nz are really good at helping here, and reassessing those things from time to time was wise, he said.

The NZX 50 closed at 8774.52 on Thursday.

‘‘Looking into the next year, it’s time to assess your appetite for risk.’’ Grant Davies of Hamilton Hindin Greene