Since the beginning of the fourth quarter, concerns about rising interest rates and the US-China trade war have been taking a toll on the broader market. After a brief pause in November, the US market sell-off intensified in December. The major US indexes have erased all of their gains. The indexes are near new lows for 2018. After four rate hikes in 2018, the Fed’s recent puzzling comments on the US economy are haunting investors.
Warren Buffett on the recession
Earlier in 2018, during an interview with CNBC, Warren Buffett suggested that “another bubble is unavoidable due to human nature, jealousy and greed.”
Buffett said, “People start being interested in something because it’s going up, not because they understand it or anything else.” While answering a question on the possibility of another crisis, Buffett said, “Well there will be one sometime.”
In the first half of 2018, most of the US companies were projecting stronger growth in the coming quarters. Investors spent money on these stocks, which pushed the companies higher. In the third quarter, President Trump repeatedly congratulated the country as the stock market touched new highs. Solid consumer confidence, the low unemployment rate, and other positive economic indicators made investors raise their bets on the expectations of the unending market rally. The growth could be an example of the “greed” that Buffett mentioned. In the fourth quarter, when many factors including the US-China trade war started taking a toll on the US market, President Trump blamed the Fed for raising interest rates.
So far in the fourth quarter, the S&P 500 Index (SPY), the NASDAQ Composite Index (QQQ) (VTI), and the Dow Jones have lost 15.3%, 18.9%, and 13.6%, respectively, as of December 20. Large US companies including Ford (F), Apple (AAPL), Amazon (AMZN), and Facebook (FB) have seen 10.7%, 30.5%, 27.1%, and 18.9% value erosion sequentially, respectively. Tesla (TSLA) has risen 19.1% in the fourth quarter despite the market sell-off, while NIO (NIO) has fallen 6.6%.