Cover story
PERFORMANCE OF INDICES IN 2018
S&P 500 (10.84%)
MSCI AC Europe (-5.32%)
FTSE All Share (-5.95%)
MSCI Emerging Markets (-6.88%)
20%
15%
10%
5%
0%
-5%
-10%
l
-15%
Source: FE Analytics
good news for value investors who
tend to outperform once earnings
have peaked. McDermott agrees: “As
quantitative tightening gathers pace,
value stocks could make a comeback.”
Falling FAANGs
Most notable among the fallers
in October were the FAANGs –
Facebook, Apple, Amazon, Netflix
and Alphabet (Google) – which
have risen exponentially in recent
years. Just weeks earlier, Apple
became the first company ever to
reach a market capitalisation of
$1trn, 38 years after listing. Amazon
was hot on its heels to reach that
landmark, just 21 years after opening
for business.
FE TRUSTNET
[ 2018 IN REVIEW ]
6 / 7
But Dennehy was not surprised to
see the tech giants fall back after such
a sustained period of success. The
Nasdaq index reached 8,000 for the
first time in the summer. Dennehy
says: “This was the year when Apple
suddenly didn’t have all the stats to
hand telling us how many iPhones it
had sold. We think the tech rout could
get ugly in 2019.”
It was no surprise amid the
tech turmoil that the Dow Jones
– an index that is
dominated by the sector – suffered
heavy falls. The US has been firing on
all cylinders and company earnings
had increased by around 27 per cent
in 2018 as the record bull run in the
market continued. The US economy
is enjoying its second-longest period
of unbroken GDP expansion in
history and that has been helped
along by significant corporate tax
cuts introduced by Trump. These
have helped to drive a record year for
share buybacks among US corporates,
which has in turn contributed to the
ongoing climb in US share prices. But
Hollands warns that as the rate of
buybacks starts to slow, share prices
could also ease off.
In October, investors finally seemed
to become wary about whether the
stock market success could continue.
The Dow Jones reached a new peak of
26,951 on 3 October before it plunged
almost 10 per cent to 24,285 by the
end of November.
While the index has since recovered
some of these losses, Dennehy thinks
there could be further to fall: “We
expect a correction of 20 to 30 per
cent and possibly something much
nastier,” he says.
“Crucially, whatever the scale
of the US fall, it will be more
or less replicated in
the UK.”
“Crucially, whatever the
scale of the US fall, it will
be more or less replicated
in the UK”
There may be trouble ahead
December is when many investors
expect to enjoy a Santa Rally, but with
so much still to play out in the final
weeks of the year, a seasonal surge
may not materialise in 2018.
The new year will see Qatar depart
the Opec cartel, leaving the outlook
for oil prices uncertain; momentum
could slow in the US after Trump lost
the House of Representatives; and
in the UK and Europe, fears about
the implications of a no-deal Brexit
continue to fester.
Dennehy says: “While
it has been a year of peaks
– peak Trump, peak Dow
Jones, peak Apple – I don’t
think we have reached peak
Brexit hysteria or peak voter
discontent throughout the
western world.”
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