While the ongoing trade dispute with China undoubtedly affected the markets in early December, the big story to borrow a line from the 1992 Presidential Election certainly was “Its the Fed Stupid”.
The SPDR S&P500 ETF (SPY) finished the month down -8.8% while the NASDQ 100 (QQQ) ETF was off by -8.7%.
Yields on the Ten Year Treasury settled at 2.69% down from November’s close of 3.01%. Accordingly the iShares Core US Aggregate Bond ETF (AGG) posted a negative return of 2.2 for the month.
The SPDR Gold Shares ETF (GLD) provided some relief for investors as it gained 4.9% for the month.
Core ETF Performance
ETF December Year to Date
SPY – SPDR S&P 500 (8.8)% (4.6)%
QQQ – Invesco QQQ (NASDAQ) (8.7)% 0.1%
GLD – SPDR Gold Shares 4.9% (1.9)%
AGG – iShare Core US Aggregate Bond 2.2% 0.3%
The month started off with a 4.5% decline in the opening week on trade concerns. Things got serious however with the Federal Reserve FOMC meeting and press conference on the 13th. With concerns about a slowing economy and recent market sluggishness there was a consensus hope that Chairman Powell might signal a softening in policy outlook. Instead the Mr. Powell indicated that current policy was not restrictive and that he saw no need to change the approach to returning the Fed balance sheet to more normal level. With that the route was on culminating with the Christmas Eave “massacre” which brought the month to date decline on the S&P 500 to nearly 15%, exacerbated no doubt by thin holiday market conditions.
Markets did stage a rebound heading into New Year’s. In fact Chairman Powell, flanked by former Chairmen Bernanke and Yellen blinked at the American Economic Association event on Friday January 4th, indicating that the longstanding Fed “Put” is still in place, the markets reacted accordingly by shifting into full rally mode.
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