2018 SIA Perspectives
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In last quarter’s SIA Perspectives, we noted a surge in stock market returns for the 3rd quarter as investors shrugged off issues such as trade wars, Britain’s exit from the European Union (EU) and China’s slowing economic growth. Our reports showed that, through September, many stock market benchmarks reached record levels as announcements of excellent corporate earnings energized investors. In fact, a balanced portfolio of stocks and bonds posted solid returns for the first nine months of 2018.
Last quarter’s SIA Perspectives detailed the impact of political leaders attending high profile group events like the NATO and the G-7 summits, while also conducting historic one-on-one meetings. The tension surrounding these events rattled financial markets and drove investors into U.S. based investments, as earnings growth domestically continued to be outstanding.
Our first SIA Perspectives of 2018 detailed the mixed and volatile returns for most financial markets during the first three months of the year. It highlighted a great start to the year for stocks, with big gains in January, that were then offset by declines beginning in late February. Bond prices bounced higher and then ended lower for the quarter. After the relative calm of 2017, this volatility surprised investors.
The swings in financial markets throughout the 1st quarter reminded us of Newton’s Cradle – a toy from our past that demonstrates one of Sir Isaac Newton’s three laws of motion. Although this mathematician died in 1727, his third law can be applied to explain performance to-date in 2018: “For every action, there is an equal and opposite reaction”.