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The longest bull market in stock market history hit a tsunami in the 4th quarter of 2018, with the S&P 500 dropping 19.9% from peak to trough – from a high of 2940.91 in late September to a low of 2356.33 on December 24. (The S&P 500 Index is a market-cap-weighted index that represents the average performance of a group of 500 large-capitalization stocks.)

Even after a late rally, the S&P 500 ended the year lower than it began for only the second time since the bull market began in March 2009.

The 19.9% drop nearly signaled the end of the current bull market. A common definition of a bull market is a period during which the market never drops 20% or more from a closing high. But while this latest swoon may not officially end the bull market, it would certainly be considered a serious market correction.

It would be difficult to pinpoint a specific cause of the recent market decline. Rather, the drop may be attributed to a variety of factors, including the fear of a policy mistake by the Federal Reserve (Fed), global trade and tariff issues, slowing global growth and concerns that it may spread to the U.S. economy, political discord, and concerns over mounting government and corporate debt. (See: 2019 Market Outlook: Will Turbulent Times Continue?)

International markets have also been volatile – both in the 4th quarter and throughout 2018. The MSCI EAFE Index, which tracks the performance of developed-economy stocks in Europe, Asia and Australia, declined 16.14% for the year, with a 4.96% drop in December.

But while stocks have been slumping, several areas of the economy have continued to post solid gains. Here are some of the recent economic highlights, most of which are covered in greater detail later in this report:

  • Retail sales edge up. Retail sales inched up by 0.2% in November. Sales were up 4.2% from a year earlier, according to the U.S. Department of Commerce. Holiday sales were also up significantly over a year ago.
  • Job growth continues. Through the first 11 months of 2018, U.S. employers added an average of 206,000 jobs per month, with job growth continuing through 98 consecutive months, according to the U.S. Department of Labor.
  • Solid GDP growth. Gross domestic product (GDP) grew at a solid annualized rate of 3.4 percent in the 3rd quarter, according to the third estimate by the Bureau of Economic Analysis issued December 21. That followed a 4.2% increase in the 2nd quarter. For the year, the Fed estimated GDP growth of about 3%.
  • Income rising. Personal income increased 0.2% in November after increasing by 0.5% in October, according to the Bureau of Economic Analysis report issued December 21. Wages and salaries, the largest component of personal income, increased by 0.2% in November after rising by 0.4% in October.

What’s ahead for the economy and the markets? See: 2019 Market Outlook: Will Turbulent Times Continue? by Mark Simenstad, Chief Investment Strategist

Drilling Down

U.S. Stocks Plunge

Even after a late year rally, the S&P 500 still dropped 9.18% in December, declining from 2,760.17 at the end of November to 2,506.85 at the close of December. For the year, the S&P 500 was down 6.24% from its 2017 closing level of 2,673.61.

The total return of the index (including dividends) was -9.03% in December. For the year, the total return of the S&P 500 was -4.38%.

The NASDAQ Index fell 9.48% for the month of December. After a strong start to 2018, the 4th quarter slump pushed the NASDAQ into negative territory. For all of 2018, the NASDAQ was down 3.88%. (The NASDAQ – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.)

Retail Sales Rise

Retail sales increased by 0.2% in November from the previous month. Sales were up 4.2% from a year earlier, according to the advance monthly retail sales report issued December 14 by the U.S. Department of Commerce.

Electronics and appliance store sales were up 1.4%, and sales by non-store retailers (primarily online) were up 2.3% for the month and 10.8% for the year.

Holiday sales for 2018 were up 5.1% from a year earlier, according to a Mastercard SpendingPulse report, issued on December 26. Online sales increased 19.1% from a year earlier.

Jobs Still Climbing

U.S. employers added 155,000 new jobs in November, and the unemployment rate remained unchanged at 3.7%, according to the U.S. Bureau of Labor Statistics Employment Situation Report issued December 7. The economy has added jobs for 98 consecutive months.

Average hourly earnings for all employees on private nonfarm payrolls rose by $0.06 to $27.35. Over the past year, average hourly earnings increased by $0.81 cents, or 3.1%.

All Sectors Take a December Dive

All 11 sectors of the S&P 500 suffered declines in December.

The best performing sector was Utilities, down 4.02%, and the worst performing sectors were Energy, down 12.67%, and Financials, down 11.28%.

For the year, the only sector to end in positive territory was Utilities, up 4.11% for all of 2018. The biggest losers for the year were Energy, down 18.10%, Materials, down 14.7%, and Industrials, down 13.29%.

The chart below shows the results of the 11 sectors for the past month, past quarter and all of 2018:

Treasury Yields Drop

The yield on 10-year U.S. Treasuries ended the year at 2.74%, down 0.41% from its November close of 3.15%. For the year, the yield was up 0.33% after ending 2017 at 2.41%.

The Fed raised rates by 0.25% to a range of 2.25 - 2.50% at its December 19 meeting. It has raised interest rates nine times since December 2015. The Fed board indicated that it may raise rates twice more during 2019.

Corporate Earnings Climbing

Corporate earnings growth was strong throughout the past year, with the aid of the corporate tax reduction policy that took effect in 2018. (See: Can Strong Earnings Growth Trend Continue?)

Although the 12-month forward earnings per aggregate share of the S&P 500 was down slightly in December (-0.75%), it was up 18.06% for the year.

As stock prices declined over the past several months, so did the forward price-earnings ratio (P/E) of the S&P 500. It closed 2017 at 18.2 – the highest level since 2004 – and dropped to 16.8 at the close of the 3rd quarter as corporate earnings rose. In the 4th quarter, with the stock market declining, the P/E dropped to just 14.41, which is the lowest level since 2014.

The forward 12 months earnings yield for the S&P 500, which is the inverse of the P/E, ended the year at 6.94% after ending the 3rd quarter at 5.97%. It is well above the 5.47% yield at the end of 2017. The 12-month forward earnings yield can be helpful in comparing equity earnings yields with current bond yields. The equity earnings yield is still significantly higher than the 2.74% market rate of 10-year U.S. Treasuries.

Dollar Strengthens versus the Euro but Not the Yen

Even after a weak December, the U.S. dollar still managed to post a strong year versus the Euro. For the year, the Euro dropped 4.80% versus the dollar.


After dropping 3.38% versus the Yen in December, the dollar ended the year down 2.61% versus the Yen.

Oil Market Continues to Decline

Oil prices continued to drop in December, as the price of West Texas Intermediate dipped from $50.93 per barrel at the end of November to $45.41 at the end of December – a 10.84% decline. (West Texas Intermediate is a grade of crude oil used as a benchmark in oil pricing.)

Oil prices have been slumping throughout the 4th quarter. After reaching a high of about $76 per barrel on October 3, oil ended December down nearly 40%. (See: Reading Between the Lines of an Oil Price Decline)

For the year, the price of oil was down 24.84% from its 2017 closing price of $60.42.

Gold Shines

Gold fared very well in December as the stock market plummeted. The price of gold moved up 4.65% from its November close of $1,226.00 per ounce to its December closing price of $1,283.00.

But gold was still down 2.01% for the year, after closing 2017 at $1,309.30.

International Equities End Bad Year on a Down Note

The MSCI EAFE Index1 was down 4.96% in December, ending an abysmal year for the international stock market. For the year, the index was down 16.14%, as economic and trade concerns roiled markets in both Europe and Asia.

[1] MSCI EAFE Index is a market capitalization-weighted index designed to measure the equity market performance of developed markets outside of the U.S. and Canada. It includes companies listed on stock exchanges in Europe, Asia and Australia, representing 22 developed-market countries.

What’s ahead for the economy and the markets? See: 2019 Market Outlook: Will Turbulent Times Continue? by Mark Simenstad, Chief Investment Strategist.

To see our Market Outlooks every month and learn more about our perspective on the markets, the economy, and investing, subscribe to our Investing Insights newsletter.

Media contact: Samantha Mehrotra, 612-844-4197,

All information and representations herein are as of 01/02/2019, unless otherwise noted.

The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management associates. Actual investment decisions made by Thrivent Asset Management will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product.  Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.

Past performance is not necessarily indicative of future results.

Market Performance