Wall Street was afflicted by extreme volatility in 2018, following a fabulous 2017. Market volatility which first appeared in February on investors’ concerns about hyper-inflation aggravated in March, as result of the trade conflict between the United States and China.
Although Wall Street had a relatively smooth run in the next six months, the situation worsened significantly in the last three months of the year fueled by a plethora of factors – yield curve inversion, the recent rate hike and the Fed’s tighter monetary stance, conflicting news related to trade war between the United States and China and concerns of a global economic slowdown.
Plunges in 2018
The Nasdaq Composite – one of the three major stock indexes of U.S. stock market – erased all its gains made in 2018. Currently, the tech-heavy index is down 10.3% year to date and a bear market. The tech-laden index has now plunged 23.6% from the all-time record high close achieved on Aug. 29. On Dec 24, Nasdaq Composite closed at 6,192.92, marking its lowest closing since Jul 10, 2017.
The Nasdaq Composite’s stiff fall in 2018 can be attributed to three reasons. First, lingering trade conflicts with China significantly dented the technology sector. China is a major source of inputs which are needed by most of the large-cap tech stocks for their final products. Moreover, China also provides the largest market for these high-tech products.
Second, introduction of tariffs in the range of 10 — 25% on Chinese exports of several important intermediary products of the tech sector raised the cost of production for these companies. Third, the Fed has hiked interest rate four times this year which raised the benchmark lending rate by 1% in 2018. Consequently, the cost of funds jumped up much to the disadvantage of the tech sector.
Tech Sector Likely to Rebound