Let’s be frank: the markets took a bit of a beating this year. In contrast to the tremendous performance of last year, 2018 was markedly less enjoyable or serene:
- At the Close – the DJIA ends an ugly year on a positive note; the last session added over 260 points to finish at 23,327.46 for a daily gain of 1.15% and the best final trading session since 2012. But for the year, the Average closed down 5.63%, the worst annual performance since 2008 and only the second negative yearly return of the last decade. The DJIA also closed out 2018 down over 13% from the high for the year; similarly, that was the worst since 2008 when the market closed nearly a full third lower (down 32.79% from that year’s high).
- Prominent Themes – The return of volatility, the last legs(?) of a decade long bull market, tariffs and trade wars, interest rate increases and unpredictable US and global political climates.
- New Highs – the DJIA logged 15 new highs in 2018, behind the pace of the last few years yet ahead of the annual average of 11 new highs per year since inception. In contrast, the DJIA reached more new highs in 2017 – 71 in total – than any year in history. There have been 53 calendar years when the DJIA notched at least 1 new high and 70 when none were recorded.
- Large Moves – Muted volatility was a major theme in 2017. But in 2018? Yeah…no. This year, there were 69 trading sessions when the DJIA posted a move of 1% or greater. That performance is more volatile than historical averages: since 1940, the annual average is ~49 one percent moves or an experience that typically occurs in about 1 of every 5 trading sessions. In 2018, the statistic was greater than 1 in every 4 sessions. By comparison, in 2017 a 1% move occurred in only 1 of every 25 sessions. Similarly, the DJIA’s realized 21 day volatility ended the year at 28.51, nearly 4 times higher than the reading at the end of 2017.
- Best & Worst Days:
- Best Day in Point & Percent Terms – December 26 (up 1086.24 or 4.98%), when investors, heartened by positive retail numbers, drove the DJIA to its first ever 1000+ point daily gain and the best ever Christmas Eve session.
- Worst Day in Point & Percent Terms – February 5 (down 4.60% or 1175.21), when, oddly, the charging economy led to inflation concerns and potentially resultant Federal Reserve responses. The DJIA posted its first ever single session 1000+ point decline followed 3 days later by yet another.
- Quarterly Gain – the DJIA posted a pretty brutal return of -11.83% in Q4, the worst period since Q3 of 2011 when the European debt crisis weighed on investor sentiment and pushed the DJIA down 12.09%.
- 10 Year Returns – since inception, the DJIA has an average 10 year return of over 83%. This year, despite the negative performance, the 10 year return is a whopping 165%. How is that possible? It’s because this most recent 10 year period began after the DJIA got smoked during the financial crisis: since then, the DJIA has risen from ~8,800 to over 23,000.
- Milestones – Two new 1000 point milestones were logged in January (25k and 26k) but the party ended shortly thereafter. This, in contrast to 2017 when 5 new 1000 point milestones (20k, 21k, 22k, 23k & 24k) were recorded. That performance was the most active such period on record. Remember the caveat: it’s important to note that as the DJIA gains in value each successive 1000 point milestone represents a smaller percentage gain.
- Stock Contributions – UnitedHealth Group (UNH) was the biggest contributor to the DJIA’s advance, adding over 197 points. Boeing (BA) and Merck (MRK) were in the #2 and #3 spots respectively. Goldman Sachs (GS) was the worst performer in 2018, responsible for bleeding nearly 600 points from the DJIA; 3M (MMM) and IBM (IBM, duh) were the second and third worst performers. In all, fourteen stocks added to the DJIA over the last year while seventeen detracted. Yes, 14+17=31, more than the DJIA’s requisite 30 blue chip names. But remember that General Electric (GE), the last remaining original DJIA component, was replaced by Walgreen Boots in June – we need to include GE’s performance (a detraction, by the way) to fully account for the movement of the Average.
- Sector Contributions – the Healthcare sector was the largest contributor in 2018, followed by Telecommunications and Consumer Discretionary. In fact, those were the only 3 sectors to make positive contributions. To the downside, Financials were the worst performer, followed by Industrials and Energy.
Here’s hoping for a better 2019.