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In One Chart - December 13, 2018

In One Chart: Major Indices 8-12% Off 2018 High

With only 11.5 trading days remaining in 2018, the major indices are about 8% to 12% down from their year-to-date highs.

As a whole, this year has been quite the ride for investors. If 2017 was a lazy river, 2018 was a log ride with some out-of-date safety features.

The chart below shows the percent off high for popular ETFs that track the three major indices. All three securities reached record levels at various times throughout the year, but are now in or flirting with correction territory since early October highs.

The year started where 2017 left off — corporate tax cuts courtesy of President Trump sent the markets on a confident upward trajectory; however, the President giveth and the President taketh away.

The executive branch began trading tariff blows with China that caused investors to worry if an all-out trade war was imminent. Those worries have escalated and retreated multiple times this year, but the recent meetings between Presidents Trump and Xi have calmed investors, for now.

Tariffs have contributed to the strengthening of the US Dollar throughout the year, but as the dollar strengthens domestic businesses will find it more difficult to sell their goods abroad.

Recent worries surrounding the Technology Sector have been a large contributing factor to the overall market sell-off in Q4. The Technology Select Sector SPDR® ETF (XLK) reached a record level to start October but is now 12% down from that high.

While all of this has been going on, the Federal Reserve Bank has raised the US Target Federal Funds Rate three times, in March, June, and September, to its current 2.00%, contributing to a flattening of the yield curve that some have argued is a warning sign for recession. The FOMC elected to not raise its target in November but has one meeting remaining on December 18th and 19th.

These major narratives have been driving the markets’ bumpy ride in 2018. As for 2019, are we coming up on the log ride’s biggest drop yet? Or should investors start blowing up their inner tubes?

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