Q4 2018 Quarterly Investment Review

January 17, 2019

In our quarterly overview of the global financial markets, Kevin Barr, Head of our Investment Management Unit gives our perspectives on the past quarter and looks ahead to the new year

Stock market volatility was the big story in the fourth quarter of 2018. The VIX Index, which is used to gauge expected volatility in the S&P 500 index, rises when there is turmoil in the financial markets. Its sharp upward moves in the fourth quarter reflected investor’s concerns, as did the MSCI All-Country World Index.

Q4 2018

Video Transcript

Open transcript

Hi, I'm Kevin Barr, Head of SEI's Investment Management Unit. Over the next few minutes, I will provide an overview of the global financial markets and our perspective on them. 

Stock market volatility was the big story in the fourth quarter of 2018. The VIX Index, which is used to gauge expected volatility in the S&P 500 index, rises when there is turmoil in the financial markets. Its sharp upward moves in the fourth quarter reflected investors' concerns.  

When the VIX moves up, the S&P 500 tends to move down. It fell nearly 20% in the fourth quarter before recovering slightly. The decline reflected fears about trade with China, uncertainty around  Brexit, trouble in Washington and concerns over rising interest rates. 

The MSCI All-Country World Index, a proxy for global equity markets, followed a similar path.  

The fourth quarter’s difficult environment created notable headwinds for SEI strategies. While big declines in stock prices are unsettling, we caution against making emotion-driven portfolio changes during volatile market conditions. 

Rather than sell portfolio holdings at depressed prices, we believe investors can take more constructive action. Recent declines have created an opportunity to rebalance back toward today’s more attractively valued equities. 

Looking ahead, the same risks that marked much of 2018 are with us in the New Year. Trade tensions, interest rates and slower economic growth remain at the top of the list. While the aging bull market isn’t getting any younger, bull markets usually die from policy missteps and contracting economic fundamentals. At the moment, economic fundamentals remain solid, there are few signs of recessionary conditions and the pace of interest rates hikes is expected to moderate. 
With respect to the financial markets, we expect to see the dominance of U.S. technology stocks continue to fade and market volatility to remain high. We believe this environment will present more favorable conditions for diversified portfolios and value-oriented stocks, both of which we view favorably. Accordingly,  we encourage investors to remain patient and stick with their long-term strategies. 

On behalf of everyone at SEI, thank you, as always for your trust and confidence.

Index Descriptions 

All indexes are quoted in gross performance unless otherwise indicated. 

MSCI All Country World Index: The MSCI ACWI Index  is a market capitalization weighted index composed of over 2,000 companies, and is representative of the market structure of 46 developed and emerging market countries in North and South America, Europe, Africa, and the Pacific Rim. The index is calculated with net dividends reinvested in U.S. dollars.

S&P 500 Index: The S&P 500 Index is an unmanaged, market-capitalization weighted index that consists of the 500 largest publicly traded U.S. companies and is considered representative of the broad U.S. stock market

Chicago Board Options Exchange Volatility Index: The VIX, or Chicago Board Options Exchange Volatility Index, uses option prices on the S&P 500 to estimate the implied volatility of the S&P 500 Index over the next 30 days. Options are derivative contracts that give a buyer the right (and impose upon the seller an obligation, if called upon by the buyer) to buy or sell an underlying security at a specified price, usually for a specified period of time. A higher number indicates greater volatility and an increase in the VIX is often associated with higher risk aversion among investors.

Legal Note

There are risks involved with investing, including loss of principal. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Diversification may not protect against market loss.

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice and is intended for educational purposes only.
Index returns are for illustrative purposes only and do not represent actual fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.
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