As we discussed in the previous part, US equity markets (QQQ) were under pressure in 2018, especially in the fourth quarter. Apple (AAPL) was Berkshire Hathaway’s (BRK-B) biggest holding, according to the most recent filing. In the fourth quarter, Apple saw its market capitalization fall below $700 billion for the first time since 2017. Amazon (AMZN) also flirted with a market capitalization of $1 trillion. Microsoft (MSFT), along with Apple and Amazon, was in a tight race for the biggest company tag in the fourth quarter.
A bottom yet?
Although several fund managers and President Trump called the current scenario a “bottom,” the bears appear to be in control. After years of oblivion, the bears have wanted revenge and 2018 offered the best opportunity. The key premise behind the market sell-off seemed to be that markets are repositioning themselves for a possible synchronized global slowdown in 2019. The scenario looks like a mirror image of December 2017 when we saw a sharp rally in equity markets. Markets priced in synchronized global growth for 2018.
While growth concerns are real and most leading economies, including the US and China, are expected to grow at a slower pace in 2019 compared to 2018, it doesn’t look easy for bears. A lot of pessimism related to the growth slowdown already seems to be factored in the prices. In 2017, the markets priced in strong economic growth in 2018, which left little gains on the table for 2018. In 2019, a lot of the slowdown-related sell-off took place in the fourth quarter of 2018. Drawing a comparison from 2017, the losses could be limited in 2019.
There are several themes to watch in 2019 that could eventually drive the market performance. Next, we’ll discuss the themes and possible drivers.