2018: The Year in Charts

These are the charts and themes that tell the story of 2018…

I. All Good Things…

…must come to an end. After 9 straight years of gains, the S&P 500 finished down 4.4% in 2018, its first down year since 2008.

s&p 500 - Total returns 1928 - 2018

The record run from 2009-2017 thus ends in a tie with 1991-1999 for the longest positive streak in history.

s&p 500 - Longest consecutive positive calendar year streaks

Was a down year a foregone conclusion? Far from it. At the close on September 20, the S&P 500 was sitting at an all-time high, up 11% on the year.

S&P 500 charts - 2018 Total Return through September 20

Over the next 3 months, it would give back all of those gains and more, with a peak-to-trough decline of over 20%.

s&p 500 Index in 2018

Why were stocks going down? Take your pick: rising rates, China slowdown, trade war, weakness in housing, etc. There’s always a “reason” after the fact.

s&p 500 correction of >5% since march 2009 low

Regardless, this was now the largest stock market decline since 2011, leaving the S&P 500 at one of its most extreme oversold levels ever.

s&p 500 correction of >15% since march 2009 low

s&p 500 charts - 500 percent of stocks above 50 day moving average

Investors who were extremely greedy at the start of the year were suddenly extremely fearful.

s&p 500 charts - AAII Sentiment survey 1987-2018

On Christmas Eve, the S&P was down 14.8% on the month, on pace for the worst December in history. A post-Christmas bounce averted this ignominious feat, but the damage was done.

S&p 500 charts- down Decembers 1928 -2018 and worst months 1928 - 2018

At -9%, December was the largest monthly decline in the S&P 500 since February 2009.

s&p 500 total return index

Is this the big one or just another large correction? I asked this question on twitter and this was the response…

Global equity correction - Charlie Bilello on Twitter

II. Bear Markets and Recessions

Does a 20% decline in stocks mean a recession is coming? That’s the question everyone seems to be asking today.

Looking back at history, the answer is far from clear. This is now the 21st Bear Market since 1929. Of the previous 20, only 11 were associated with a recession (55% of the time).

s&p 500 bear markets

Sometimes a Bear is just a Bear (the stock market is not the economy). Is this one of those times? We’ll find out soon enough.

s&p 500 charts - Bear markets with no recession 1929 - Present

For what it’s worth, on twitter more people said stocks were signaling an upcoming slowdown than a recession.

Charlie Bilello on Twitter - 20% decline in S&P 500

III. When Multiples Contract

If someone told you that earnings would increase 26% in 2018 and that profit margins would hit record highs, you would probably guess that stocks would be higher.

S&p 500 charts - Operating EPS growth

s&p 500 - Operating profit margin

That would’ve been a reasonable assumption in most years, but not in 2018. For the first time since 2011, we saw multiples contract (-25%), with the P/E ratio on the S&P 500 moving from 21.4 at the start of the year to 16 at the end.

s&p 500 earnings growth - TTM P/E Ratios (1989-2018)

Investors learned once again that stock prices lead earnings, not the other way around. The strong equity markets of 2017 were anticipating the strong earnings of 2018.

What is the multiple contraction this year telling us about future earnings growth? That it’s likely to slow.

How will market participants respond to such a slowdown? Nobody knows, because it requires predicting investor sentiment (what multiple will investors pay for next year’s earnings?). Needless to say, predicting investor sentiment is a difficult game, which in turn makes predicting future stock prices exceedingly difficult. Further complicating matters is the fact that predicting future earnings is not any easier.

IV. No Place to Hide

In a broadly diversified portfolio, there’s usually something working in any given year. When stocks are down, bonds are typically up. When bonds are down, stocks are typically up and when stocks and bonds go down together, something else is often up (TIPS, Commodities, REITs or Gold).

Well, not this year.

In 2018, more than any year in recent history, the overwhelming majority of asset classes were down. In the table below of 15 asset classes ranging from stocks to bonds to REITs to Gold and Commodities, only one finished higher: Cash.

ETF Total returns (2008-2018)

If you maintain a globally diversified portfolio, this was likely your worst year since 2008, with a 60/40 allocation (AOR ETF) down just under 6%. To be sure, this is but a scratch compared to the devastating losses investors faced in 2008. But for a whole generation of new investors who knew nothing but gains year in and year out, this is now their 2008.

Stocks, Bonds and Asset Allocation ETFs (Total Returns 20199-2018)

Every major global equity index finished lower in 2018, the polar opposite of 2017. U.S. equities actually fared much better than most…

Global Equity Total Returns S&p 500 charts

The 25 largest equity ETFs were all in the red.

25 Largest equity ETFs in 2018

Only 3 country ETFs finished positive: Qatar, Saudi Arabia, and New Zealand. How many strategists had Qatar on their list of top picks for 2018?

Country ETFs 20198 Total return in US $

The major banks were hit particularly hard, both in the U.S. and in Europe.

2018 Total return - stock charts Goldman Sachs group & Deutsche Bank AG

And asset managers had their worst year in a long time.

s&p 500 charts

With the exception of Tesla, auto stocks were slammed.

s&p 500 charts - Auto stocks

In terms of sectors, the defensive health care and utilities names fared the best, while the more cyclical areas were crushed.

s&p 500 - Sector ETFs

V. Extreme Volatility or a Return to Normalcy?

In 2017, both stocks and bonds sported their lowest volatility in history (using monthly data going back to 1928 for S&P 500 and 1976 for Barclays Aggregate). The S&P 500 did not have more than a 3% drawdown the entire year and was positive every single month.

s&p 500 - Bloomberg Barclays vs S&P 500 Index (TR)

Given this backdrop, any increase in volatility would have felt like a crash. And indeed it did, with many market participants describing the daily swings as “crazy” and “abnormal.”

The truth? What we saw in 2018 was standard behavior, the price of admission for long-term investors.

At 17%, the S&P 500’s annualized volatility in 2018 was just a hair above its calendar year average going back to 1928 (16.3%).

s&p 500 - Annualized Volatility (1928-2018)

While the number of days with large gains or losses was higher than any year since 2011 (ex: 20 swings >2%), one could hardly call this unprecedented (we saw a higher number of 2% swings in 1929-35, 1937-39, 1946, 1974, 1987, 1998-2002, and 2008-2011).

s&p 500 - Number of large ups and downs

The maximum intra-year drawdown of 19.8% (closing basis), while above the historical average (-16.4%), was also far from an outlier.

s&p 500 - Maximum intra year drawdown 19298-2018

If anything in markets can be described as “abnormal,” it was the minuscule 2.8% maximum drawdown we saw in 2017. Volatility and corrections are features in markets, not bugs. It can be hard to appreciate it when you’re in the midst of a decline, but investors should be thankful that this is true. For without risk there would be no reward.

VI. The End of Easy Money

While markets were hitting all-time highs in late September, an important shift in monetary policy had just taken place. With the 8th 25 bps interest rate hike, the real Fed Funds rate had turned positive for the first time in 124 months.

Real Fed funds rate - Effective Fed Funds Rate minus Core CPI

The longest period of easy money in history had finally ended.

Consecutive months with a negative real Fed funds rate

The question I asked at the time: will market behavior begin to change now that it is over? We would soon find out.

But in spite of the deep correction that followed, the Fed would hike once more in December, bringing the Fed Funds rate up to a range of 2.25-2.50%, its highest level in over 10 years. Short-term Treasury rates moved higher in tandem, a positive for savers.

3-Months US Treasury yield

Cash was king in 2018, having its best year since 2007.

US 3-Month Treasury Bill

Should investors expect more of the same from the Fed in 2019? In a word: no. As I argued in a recent post, despite the Fed’s projection for 3 more rate hikes, a long pause awaits. The combination of plummeting inflation expectations, a global bear market, and tightening credit markets are enough to slow the Fed down for a while.

5-Year US Breakeven Inflation rate

Vanguard Total World Stock ETF

s&p 500 charts - BAML High Yield Index

The market (fed funds futures) is on board with that view, now pricing in no hikes in 2019 and an interest rate cut in 2020.

s&p 500 charts- Fed Dot plots vs. Fed funds futures

As for the rest of the world, monetary policy remains extraordinarily easy, with the ECB and BOJ expected to remain in negative rate land throughout 2019.

Global central bank policy rates

Long-term bond yields in Germany and Japan actually fell in 2018, making international bonds with the lowest yields (BNDX, 1% yield) the best performers in the global fixed income space.

US, German, Japan 10-year yield

Bond ETFs - Duration, yields and returns

VII. Lions and Tigers and Yield Curve Inversions

The much dreaded inversion of the U.S. Yield Curve finally occurred in December 2018. At year-end, the 6-month Treasury bill yield stood at 2.56%, 5 basis points higher than the 5-year yield.

s&p 500 c- Treasury yield comparison chart

What made this possible? The combination of rapidly rising short-term rates (via 4 Fed hikes) and longer-term yields rising at a much slower pace.

s&p 500 charts image42

Why is a yield curve inversion feared? The last 9 recessions in the U.S. were all preceded by an inverted curve (1-yr higher than 10-yr), with an average lead time of 14 months.

s&p 500 charts image43

We also tend to see weaker stock market returns in periods following flat/inverted curves.

s&p 500 charts image44

While the entire yield curve is not yet inverted, it’s getting closer by the day, with the 10-year yield now just 24 basis points higher than the 3-month.

s&p 500 charts image45

Investors and the Fed will undoubtedly be watching this indicator closely in early 2019. What should they want to see? Long-term rates moving up again, signaling a resurgence in growth expectations. What do they not want to see? As I discussed on our last webinar, 10-Year Yields continuing to fall, which would mirror the action following the peak in yields in January 2000 and June 2007.

s&p 500 charts image46

VIII. The Other Side of a Mania

What a difference a year makes. In the 2017 year in charts, I outlined the mania that rivaled all other manias: the historic rise in cryptocurrencies.

Fast forward to today and investors found out what happens on the other side of a mania: an epic crash to rival all other crashes.

In 2018, every major crypto currency traded lower with an average decline of 85%.

s&p 500 charts image47

From its peak in December 2017 to its low a year later, Bitcoin declined over 84%.

s&p 500 charts image48

The 20 largest crypto coins at the end of 2017 had a total market value of $512 billion. During 2018, over $400 billion of this would disappear.

s&p 500 charts image49

IX. King Dollar Returns

While cyptocurrencies were moving lower, the U.S. Dollar was moving higher. With the exception of the Japanese Yen, the Dollar was up against every major global currency in 2018.

s&p 500 charts image50

As the dollar rose, most commodities fell.

s&p 500 charts image51

From its high of $77 in early October to its low of $42 in December, Crude Oil crashed 45%.

s&p 500 charts image52

As Crude Oil and inflation expectations moved higher over the past few years, the Fed hiked 9 times. The sharp decline in both over the past few months now gives the Fed room to pause.

s&p 500 charts image53

In a reversal from 2017, Lumber would fall 24% during the year. After hitting an all-time in May, it declined over 50%.

s&p 500 charts image54

Weakness in the housing market would follow, with new home sales hitting their lowest levels in over 2 years and homebuilder stocks sharply underperforming.

s&p 500 charts image55

s&p 500 charts image56

The combination of rising mortgage rates (7-year high in November) and rising home prices (widely outpacing income gains in recent years) finally started to hit affordability.

s&p 500 charts image57

X. The Longest Expansion in History?

That’s a lot of negative charts. Let’s end this on a good note.

U.S. non-farm payrolls have now been positive for 98 consecutive months, by far the longest streak in history.

s&p 500 charts image58

At 3.7%, the Unemployment Rate is at its lowest level since December 1969. While that’s not necessarily good news for stocks (see here), it’s unequivocally good for the many that have found jobs at long last.

s&p 500 charts image59

And wages are finally starting to rise, with the 3.1% increase over the past year at the highest level of the expansion.

s&p 500 charts image60

The US economic expansion is now 114 months old. If it lasts for another 7 months it will set a new record, breaking the prior run from 1991 to 2001. If you told someone in early 2009 (after the worst recession since the Depression) that the next expansion would be in the running for the longest ever, they never would have believed you. But here we are.

s&p 500 charts image61

And yet, few believe the good times will continue much longer. In a twitter poll I conducted in early November, 70% said the next U.S. recession would start by 2020. If the same poll was done today, I suspect that number would be even higher.

s&p 500 charts image62

XI. Happy New Year

These were the charts and themes that told the story of 2018. As always, the narratives followed prices.

As prices change in 2019, the narratives will change as well.

Where will the S&P 500 end 2019? Where is Crude headed? Is Gold a good investment here? How many more times will the Fed hike rates? Is a recession coming soon?

I don’t know the answer to any of these questions. As Lao Tzu said, “those who have knowledge don’t predict. Those who do predict don’t have knowledge.”

s&p 500 charts image63

What’s the alternative? Weigh the evidence as it comes, invest based on probabilities, be forever humble and thankful, and leave the predictions to those whose job it is to entertain. That’s the best you can do in this business.

In 2019, I predict one thing and one thing only: you will see many more surprises. That is the nature of markets.

Thank you for your readership this year. I hope in some small way you found this blog helpful in your journey as an investor.

I wish you all a happy, healthy, prosperous and fulfilling 2019.


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To follow these charts and themes on a more frequent basis, you can follow my latest thoughts on twitter and stocktwits.

Related Posts:

2017: The Year in Charts

2016: The Year in Charts

2015: The Year in Charts

2014: The Year in Charts



Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts. He is the co-author of four award-winning research papers on market anomalies and investing. Charlie is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors and previously held positions as a Credit, Equity and Hedge Fund Analyst at billion dollar alternative investment firms.

Charlie holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and also holds the Certified Public Accountant (CPA) certificate.

In 2017, Charlie was named the StockTwits Person of the Year. He has been named by Business Insider and MarketWatch as one of the top people to follow on Twitter and his work has been featured in Barron’s, Bloomberg, and the Wall Street Journal.

You can follow Charlie on twitter here.


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The S&P 500 is an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. An index is an unmanaged portfolio of specific securities which is often used as a benchmark in judging relative performance of certain asset classes. An index does not charge management fees or brokerage expenses and no such fees or expenses were deducted from the performance shown.

Past performance is not indicative nor a guarantee of future results.


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