All major indices and many asset classes struggled in 2018. The Nasdaq Composite finished the year down 2.81% followed by the Dow Jones Industrial Average declining 3.48% for the year with the S&P 500 closing out the year with the biggest loss of 4.39%. Eight out of the eleven sectors in the S&P 500 posted negative returns at year end, with Energy and Materials losing the most with returns of -18.10% and -14.70%, respectively. On the other hand, Health Care and Utilities did the best, posting returns of 6.47% and 4.11%, respectively. Size and returns exhibited a positive correlation as large-caps outperformed mid-caps, which beat small-cap names. Specifically, the large-cap Russell 1000 Index lost 4.79%, ahead of the Russell Midcap Index’s 9.08% decline for the year, followed by the small-cap Russell 2000 Index’s -11.03% return. Growth stocks outperformed value stocks with the Russell 1000 Growth declining 1.52% compared with the Russell 1000 Value Index’s loss of 8.28% over the year. Bonds outperformed stocks, with the Barclays U.S. Aggregate outperforming all equity benchmarks with a 0.01% return. Long-dated U.S. Treasuries performed worse with the Barclays Long-Term Treasury Index losing 2.00%. Commodities also had a tough year, with the Bloomberg Commodity Index declining 12.99%. Some of the decline represented the flipside of the dollar’s strength; the U.S. Dollar Index gained 4.40%, while gold declined 4.22%. Oil prices declined 24.84%, much of which came on the heels of Washington granting waivers on Iran sanctions, allowing other countries to continue purchasing Iran’s oil. All major developed countries ended the year down in local currency terms, with Germany being the worst market with a total return of -18.26%. Emerging market countries had a strong year with Russia and Brazil posting the largest gains in local currency terms, 18.49% and 15.03%, respectively.
The stock market went almost straight up in January, then fell sharply in February and rallied each quarter until the fourth, when the Dow Jones Industrial Average declined 11.31%, while the S&P 500 lost 13.52% and the Nasdaq Composite decreased 17.28%. Ten out of the eleven sectors in the S&P 500 posted negative returns for the fourth quarter, with Energy and Information Technology losing the most with -23.78% and -17.34% returns, respectively. Large-cap stocks outperformed mid-cap stocks, which beat small-cap names. Specifically, the Russell 1000 Index’s 13.83% loss did better than Russell Midcap Index and the Russell 2000 Index which posted declines of 15.38% and 20.21%, respectively, for the quarter. Value stocks beat their growth counterparts, as the Russell 1000 Value Index lost 11.73% compared to the 15.89% loss of the Russell 1000 Growth Index over the same period. A flight to safety helped bonds outperform stocks, with the Barclays Aggregate Total Return outperforming all equity benchmarks with a 1.64% gain, which was beaten by long-dated U.S. Treasuries, with the Barclays Long-Term Treasury Index gaining 4.68%. The U.S. Dollar Index gained 1.09% for the quarter, while oil declined 38.01%. Gold reversed course over the quarter and gained 6.61%. In December, the Fed raised interest rates for the ninth time since 2015 to a range of 2.25-2.50% despite investors worrying about a flattening yield curve as the 10-year yield declined over the quarter to 2.68%, representing a significant decline from the 3.24% peak during the quarter. The U.S. and China announced progress on trade talks over the quarter, with ongoing negotiations expected in the next few weeks.
The views expressed in this commentary reflect those of Miller Value Partners analysts as of the date of the commentary. Any views are subject to change at any time based on market or other conditions, and Miller Value Partners disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results. Content may not be reprinted, republished or used in any manner without written consent from Miller Value Partners.
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