The fourth quarter saw volatility return with a vengeance, especially in December. The S&P 500 gained/lost more than 1% in a day 10 times in December alone; in the entire year of 2017 this occurred only eight times. The Index fell nearly 20% from its high in only 11 weeks and the VIX closed the year at 25.4, up sharply from prior years but only modestly above the average over the past 12 years. While economic worries played a role, a government shutdown, continued trade rhetoric, and broad-based risk aversion also fueled the sell-off.
For the quarter, the S&P 500 Index fell 13.5%, its worst quarterly result since the third quarter of 2011 and more than erasing its gains for the year (2018: -4.4%). Small cap stocks suffered the most during the quarter (Russell 2000: -20.2% vs Russell 1000: -13.8%) and also underperformed for the full year (Russell 2000: -11.0% vs Russell 1000: -4.8%). Growth stocks also fared the worst in the quarter (Russell 1000 Growth: -15.9%; Russell 1000 Value: -11.7%) but did best for the full year (Russell 1000 Growth: -1.5% vs Russell 1000 Value: -8.3%).
From a sector perspective, falling oil prices pummeled Energy stocks (-23.8%), the worst sector by a wide margin, while Utilities (+1.4%) was the only sector to produce a positive quarterly result.
Non-U.S. developed markets were down in a similar fashion over the quarter. The MSCI ACWI ex-USA Index lost 11.5%, with most countries posting losses. For the full year, the non-U.S. developed equity markets trailed the U.S. by a significant margin; the ACWI ex-USA fell 14.2% and not one of the constituents posted a positive return for the year in U.S. dollar terms.
Emerging market performance was mixed; while the MSCI Emerging Markets Index lost 7.5% during the quarter, a number of countries did well. Brazil (+13.4%), Turkey (+4.8%), and India (+2.5%) fell into that category. Mexico (-18.8%) was the worst performer, and China (-10.7%) and Russia (-9.0%) also underperformed the broad Index. For the full year, the MSCI EM Index (-14.6%) trailed the developed markets by only a small margin. Again, results were mixed with Turkey (-41.4%) on one end and Russia (-0.7%) on the other.
