The market continued to correct in December (Euro Stoxx TR index down 5.8%), displaying higher volatility than earlier in the year (25% for the VIX on average during the month). Initially, fears of a synchronised slowdown in economic growth (PMI indices declined faster than expected in Europe, hitting a 5-year low, and Chinese indicators also disappointed) weighed on markets, with investors also concerned by the rise of interest rates, shrinking central bank balance sheets (quantitative tightening) and the impact of the trade war between the United States and China on corporate earnings. Political tensions in Europe (Italian budget proposal, Brexit negotiations and “yellow vests” in France) also added to investors’ concerns.
After recording their best “new year” in history in the first three weeks of January 2018 and driven by robust first half earnings and macroeconomic indicators (that had begun to decline but remained at high levels) and that fed a series of rebounds until the summer, markets finally posted a sharp decline for the calendar year (Euro Stoxx TR down -12.7%) and plunged in the fourth quarter (-12.96% for the Euro Stoxx TR in Q4).
In addition to this sharp correction, the year also saw major market dispersion between sectors and individual stocks
In addition to this sharp correction, the year also saw major market dispersion between sectors and individual stocks. Index performances were buoyed by a small number of large caps which gave a misleading view of market returns: most stocks have now lost more than 20% from their highs and have therefore fallen into “bear market” territory. Small and mid-caps were particularly hurt, principally in the fourth quarter, when market reactions sometimes appeared excessive considering these companies’ fundamentals and earnings, reflecting sharp risk aversion. In 2018, sector dispersion was particularly high: Utilities +4.0%, Oil & Gas +0.5%, Financials -20.8% and Commodities -22.1%. And sharp contrasts were also observed within these sectors: in the automotive industry, Peugeot was up 12.9%, while Daimler, Faurecia and Valeo fell -31.5%, -48.4% and -58.1% respectively. Within the Technology sector, Wirecard, Nemetcheck, Nokia and Dassault Systèmes surged +42.9%, +28.9%, +35.0% and +17.6% respectively, while Sopra Steria, Altran, Ingenico and Atos plunged -47.5%, -42.9%, -43.0% and -40.2%. Finally, within the Financial sector, Sofina, Scor and Deutsche Boerse posted gains of +28.7%, +23.2% and +10.8%, while Deutsche Bank, Commerzbank, Natixis and ING plunged, losing - 55.6%, -53.8%, -34.0% and -35.5% respectively.
The opinions and estimates constitute our judgment and are subject to change without notice, as well as assertions about trends in the financial markets, which are based on current conditions in these markets. We believe that the information provided in these pages is reliable, but it should not be considered exhaustive. These data, graphics or extracts were calculated or made on the basis of public information we believe to be reliable but which nevertheless have not been subject to independent verification on our part. Past performance is no guide to future returns.