In the Fall of 2018, equity markets sold off.
What was the cause?
Widespread view among economists was an expectation of slowing economic growth in 2019 and a Federal Reserve led by Chairman Jay Powell that was expected to continue to raise rates three more times in 2019.
As anxiety and stress built up in November and December, markets dropped. Between October 3 and October 29 the SP500 fell 9.7%. Between October 29 and December 7 the market bounced around rising 6.5% only to give it back and to fall .3%. However, in the weeks before Christmas, December 7 to December 24 the market fell another 10.7%. Showing the rapidness of the decline, on Christmas Eve the SP500 fell 2.6%.
On Bloomberg Surveillance on April 4th, Tom Keene asked Jim Paulson “Was December the mother of all cathartic events? It was so traumatic.” Jim Paulson responded, “I don’t ever remember a December like that ever in my entire career. It was original, and I think it shocked all of us, myself included that this happened in December… But it looks increasingly like the oddity, what was incorrect and inappropriate, was the December swoon… and we may be overdid the selling more than we should have.” (2)Continue reading ““Data Dependent” Fed Changes Course and Markets React”