Financial markets and the economy in 2018
Stretching the cycle
Just as the last leg of a long trip tends to colour your impression of the entire journey, the last quarter of 2018 may have made you think that it was a most unusual year, portending perhaps the end of this long, profitable cycle. After three quarters of slightly apprehensive bull markets, the fourth quarter of 2018 offered rapidly falling stock prices and similarly rising credit spreads.
Let me point out, then, that the calendar year 2018 was in fact well within the expected range of outcomes for any given year. Global GDP growth, estimated at 3.7 per cent, was slightly above average. In Sweden and Mainland Norway, growth came in at 2.3 and 2.0 per cent, respectively. The S&P 500 lost some four per cent, adjusted for dividends. The Norwegian benchmark index lost just 1.8 per cent.
With the benefit of a little hindsight, after market reversals at the beginning of 2019, the gloomy end to 2018 looks like a false alarm. Keep in mind, though, that false alarms are a regular feature of forward-looking financial markets trying to divine future developments. This year, against a relatively stable backdrop, the predominant theme was the length of the business cycle, or rather how much was left of it. Would reversal of the extremely expansionary monetary policies send interest rates upwards, terminating the cycle? Would inflation resurge? Would there be a recession?
And, of course, would there be new tweets indicating an escalation of the budding trade war between the US and China?
2018 in a nutshell
|S&P 500 return||-4.4%|
|MSCI World net (USD)||-8.7%|
|3-month NIBOR||from 0.81 to 1.27%|
|3-month STIBOR||from -0.47 to -0.13%|
|10 year Norwegian Treasury||from 1.65 to 1.79%|
|10 year Swedish Treasury||from 0.78 to 0.47%|
|10 year US Treasury||from 2.41 to 2.68%|
|Brent Blend||from USD 66.87 to USD 53.81|
|USD/NOK||from 8.21 to 8.69|
|EUR/NOK||from 9.84 to 9.95|
|GDP growth, global||3.7%|
|GDP growth, Norway||1.4%|
|GDP growth, Sweden||2.3%|
|GDP growth, Mainland Norway||2.2%|
Sources: Oslo Børs, S&P Dow Jones Indices, MSCI, Norges Bank, FactSet, IMF, Statistics Norway, SCB, Riksbanken, Pareto.