- Stock markets are down for 2018, with small caps bleeding all over the floor.
- Bond rates are up and prices will come down to equalize yields, forcing bond holders into haircuts if rates don’t reverse.
- Commodities are almost all down, with a very few notable exceptions.
- Residential real estate is up overall, but the sales, price, and inventory data appear to have called the top.
- Gold is down slightly, but is the only one of these asset classes to have a sustained, strong uptrend to end the year with fundamentals pointing to an even stronger 2019.
If you had made bets on which of the major assets classes would outperform in 2018, which would you have chosen?
I would wager that sentiment would have placed stocks in first place, real estate second, commodities third, bonds fourth, and precious metals last simply by the amount of coverage and hype that I have seen over the year for each of those markets. But, 2018 is clearly a transition year for the stock and bond markets which did not fare well.
Each of the major stock indices ended the year down, including the Dow, S&P500, NASDAQ, and Russell 2000. Small caps ended down the most at 13%, whereas the NASDAQ was down only 5.3% on the year.
Source: Yahoo Finance
Debt markets did not do well at all. Here is the 12-month LIBOR, whose rates spiked up almost a full percent on the year. If you are a corporate entity holding millions or billions of dollars in variable rate debt, the trend in rising LIBOR rates most definitely are not your friend.
Here is the 2 year US Treasury, which spiked from 1.91 to 2.52. That is a 32% loss if you bought on Jan 1 this year and sold today, Dec 31, 2018.
The 10 year treasury went from 2.4 to 2.77 percent. That is a 15.4% loss if you bought on Jan 1 and sold Dec on 31 this year.
Source: Macro Trends
The CRB commodity index is down about 10% on the year.
Source: Trading Economics
Here is a whole list of different commodities and their YTD performance. Notice that for a few special exceptions, the components are almost all down for 2018.
|Commodity||1 Month Change||12 Month Change||Year to Date Change|
|Commodity Agricultural Raw Materials Index||-0.98 %||-0.61 %||-5.37 %|
|Commodity Beverage Price Index||0.16 %||-5.15 %||-0.80 %|
|Commodity Price Index|
|Commodity Fuel (energy) Index||-15.44 %||6.89 %||-3.68 %|
|Commodity Food and Beverage Price Index|
|Commodity Food Price Index||-1.63 %||-4.82 %||-6.39 %|
|Commodity Industrial Inputs Price Index|
|Commodity Metals Price Index||-2.34 %||-7.14 %||-12.50 %|
|Commodity Non-Fuel Price Index||-1.32 %||-4.32 %||-6.85 %|
|Crude Oil (petroleum), Price index|
|Coal, Australian thermal coal||-7.36 %||4.23 %||-5.37 %|
|Coal, South African export price||-8.73 %||0.21 %||-6.05 %|
|Crude Oil (petroleum)||-18.78 %||3.99 %||-5.90 %|
|Crude Oil (petroleum); Dated Brent||-19.01 %||4.16 %||-5.54 %|
|Crude Oil (petroleum); Dubai Fateh||-17.54 %||7.48 %||-1.38 %|
|Crude Oil (petroleum); West Texas Intermediate||-19.90 %||0.04 %||-10.99 %|
|Diesel||-12.22 %||6.89 %||-1.25 %|
|Gasoline||-19.87 %||-11.20 %||-14.43 %|
|Heating Oil||-12.11 %||11.52 %||0.79 %|
|Indonesian Liquified Natural Gas||0.00 %||37.99 %||24.84 %|
|Jet Fuel||-13.52 %||10.51 %||-0.36 %|
|Natural Gas||25.84 %||38.46 %||6.70 %|
|Propane||-22.31 %||-23.98 %||-17.59 %|
|RBOB Gasoline||-22.85 %||-5.28 %||-10.55 %|
|Russian Natural Gas||-5.92 %||23.62 %||24.17 %|
|Cocoa beans||2.82 %||2.82 %||12.31 %|
|Coffee, Other Mild Arabicas||-0.33 %||-2.89 %||-1.31 %|
|Coffee, Robusta||-2.13 %||-8.46 %||-5.64 %|
|Tea||-2.48 %||-20.81 %||-20.27 %|
|Barley||0.00 %||10.18 %||-1.88 %|
|Maize (CORN)||0.27 %||8.06 %||3.11 %|
|Rice||-1.96 %||-0.25 %||-9.28 %|
|Soft Red Winter Wheat||0.84 %||20.03 %||18.23 %|
|Sorghum||-0.90 %||-6.05 %||-11.73 %|
|Wheat||-4.65 %||13.29 %||5.93 %|
|Oranges||-2.67 %||-15.12 %||-3.95 %|
|Beef||2.33 %||-8.78 %||-8.14 %|
|Poultry (chicken)||0.00 %||3.57 %||-1.93 %|
|Shrimp||1.75 %||-4.19 %||-5.66 %|
|Sugar||-3.45 %||-15.15 %||-9.68 %|
|Sugar, European import price||-2.63 %||-2.63 %||-7.50 %|
|Sugar, U.S. import price||-1.79 %||-8.33 %||-6.78 %|
|Coconut Oil||-6.29 %||-49.38 %||-43.56 %|
|Fishmeal||-0.34 %||6.52 %||-7.55 %|
|Olive Oil, extra virgin|
|Palm Kernel Oil||-10.79 %||-50.90 %||-43.92 %|
|Palm oil||-8.56 %||-25.94 %||-23.27 %|
|Peanut Oil||0.48 %||-4.12 %||0.52 %|
|Groundnuts (peanuts)||-3.27 %||-2.83 %||3.70 %|
|Rapeseed Oil||-1.17 %||-12.71 %||-0.92 %|
|Soybean Meal||-2.13 %||4.72 %||-2.20 %|
|Soybean Oil||-3.06 %||-17.75 %||-16.22 %|
|Soybeans||1.68 %||-5.00 %||-3.95 %|
|Sunflower oil||-1.66 %||-12.81 %||-11.63 %|
|Cotton||0.00 %||7.91 %||-4.98 %|
|Hard Logs||-0.43 %||-0.43 %||-2.08 %|
|Plywood||-0.43 %||-0.43 %||-2.08 %|
|Rubber||-5.59 %||-14.01 %||-21.51 %|
|Wood Pulp||0.00 %||0.00 %||0.00 %|
|Aluminum||-4.50 %||-7.58 %||-12.27 %|
|Copper, grade A cathode||-0.38 %||-9.24 %||-12.31 %|
|Gold||0.43 %||-4.78 %||-8.31 %|
|Iron Ore||-0.20 %||14.04 %||-4.03 %|
|Lead||-2.54 %||-21.30 %||-25.04 %|
|Nickel||-8.73 %||-6.12 %||-12.63 %|
|Silver||-1.71 %||-15.49 %||-16.23 %|
|Steel wire rod|
|Tin||-0.30 %||-2.52 %||-7.89 %|
|Zinc||-2.92 %||-19.62 %||-24.58 %|
|DAP fertilizer||-2.51 %||19.24 %||13.82 %|
|Potassium Chloride||0.00 %||0.00 %||0.00 %|
|Rock Phosphate||1.37 %||15.63 %||15.63 %|
|Triple Superphosphate||-1.56 %||28.47 %||18.44 %|
|Urea||13.19 %||9.14 %||39.14 %|
Source: Index Mundi
REIT investments overall did not fair too well in 2018, which per the Dow Jones Real Estate Index were down 8.2% on the year.
Source: S&P Dow Jones Indices
The Semi-Bright Spot With Weakening Fundamentals
US Residential real estate led the charge in 2018, up 4.9% according to Case-Shiller.
However, indications are that retail inventories are rising and sales are down, so it appears the bull market in residential real estate may have come to an end. The index above was relatively flat for the last 6 months of the year, also indicating a price top may be in.
Gold is Alone in Ending 2018 in a Sustained Up Trend
Surprising to most is the fact that gold held its own in 2018, ending down just 1.6% for the year.
Of these asset classes, only gold ended the year in a solid uptrend, largely on concerns of volatility in the stock markets and a weakening picture for debt securities. If you are concerned about the other markets, gold may be a good piggy bank savings vehicle for you in 2019.
Unless the bond markets stabilize and LIBOR rates come back down, then the broad stock indices will continue to suffer on expectations of decreased corporate earnings and higher US budget deficits. These factors favor a continued increase in the gold price in 2019.
Does the performance of the major asset classes in 2018 surprise you? If we had taken an investor survey on January 1, I bet it would show expectations almost exactly opposite of the results we have had for 2018.
As a result, 2019 is shaping up to be a very interesting year for investors that have become reliant on the 30 year bond bull and the nearly 10 year stock bull markets.
I predict gold and silver will shine in 2019 while the other major asset classes see continued price volatility.