Almost nothing paid off for investors in 2018
WASHINGTON — In 2017, nearly everything investors touched made money.
Major stock indexes were up about 20 percent or more. Bonds turned in another solid year of gains. And the housing market was sizzling, with median home prices in Southern California up 8.2 percent from a year earlier to top the bubble-era high reached in 2007.
This year was looking to be even more promising. After all, big new tax cuts kicked in on Jan. 1 and were supposed to provide what President Trump called “rocket fuel” for the U.S. economy.
Analysts expected that would help push an already soaring stock market to new heights.
Instead, 2018 has been a dud for investors across the board.
All the four major U.S. stock indexes declined at least 4.6 percent for the year through Friday — and they’re poised to all finish with negative annual returns for the first time since 2008. And the poor performance was broadbased: nine of the 11 sectors in the benchmark Standard & Poor’s 500 index are in the red for 2018.
As interest rates rose, bond returns fell, with one benchmark fund down about 3 percent. Gold didn’t fare much better. And don’t talk about Bitcoin, the cryptocurrency whose value plummeted by nearly three-fourths.
Even residential real estate markets have slowed and, in some parts of the country, gone into decline.
For the first time in years, the best annual returns came from keeping your money in cold, hard cash and holding it in savings accounts, money market funds or certificates of deposit that have seen their interest rates rise from rock-bottom levels.
Just stuffing cash in the mattress, where its buying power eroded by the approximately 2 percent annual inflation rate, would have beaten the 7 percent loss incurred this year from a fund tied to the S&P 500.
The long bull market now is close to the slaughterhouse. The year ended with wild weeks of financial market volatility triggered by worries about the U.S.-China trade war, a slowing global economy, unforced errors by the Trump administration, the turnover of the House majority to Democrats, a partial federal government shutdown and worries about a U.S. recession.
“If you go back to last December, shortly after the tax package was passed, people looking ahead to 2018 felt universally bullish,” said Patrick Schaffer, a global investment specialist at JP Morgan Private Bank in Los Angeles. “Now, at the end of 2018 looking ahead to 2019, there are very few reasons to be optimistic.”
Wall Street is close to a bear market — defined as a sustained decline of at least 20 percent from recent highs. That often is a precursor of a recession. Economists said the risk of a recession in the next couple of years is rising as the recovery from the Great Recession is 9 1/2 years old, the second-longest in U.S. history.
But just as 2018 didn’t turn out as anticipated, next year also could provide surprises.
A full-fledged bear market might not develop in 2019, analysts said. And the big stock declines at year-end pushed major indexes lower than warranted by still-solid corporate earnings and economic conditions, opening the door for gains next year.