A Volatile Week Marked by Uncertainty

Summary

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WSJ Your Money Briefing — "A Volatile Week Marked by Uncertainty"

Date: December 28, 2018
Host: Charlie Turner
Guest: Jessica Menton, Wall Street Journal Markets Reporter

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Overview

This episode explores the extreme volatility in the U.S. stock markets during the final week of December 2018. Host Charlie Turner and markets reporter Jessica Menton discuss the week’s dramatic swings, underlying causes of uncertainty, historical context, and what investors might anticipate heading into the new year. Special focus is placed on market psychology, low trading volume, sector performance, and key economic data due in the coming weeks.

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Key Discussion Points & Insights

1. Recap of an Exceptionally Volatile Week

• The Dow Jones dropped 76 points to 23,062 on Friday, while the Nasdaq gained 5, and the S&P 500 fell by 3 points.

• All major indexes ended a three-week losing streak, with the Dow up 2%, Nasdaq up 4%, and S&P 500 up 2.9% for the week.

• Turner highlights the Dow’s record one-day gain of 1,086 points on Wednesday as a major rebound amid volatility.

• Despite the uptick, indices remain on track for their first annual losses in a decade, with December being their worst since the Great Depression era.

  “The blue chips and the S&P are on pace for their worst December…since 1931. That’s unbelievable.” — Charlie Turner [01:46]

2. End-of-Week Swings and Patterns

• Menton notes, “I've just noticed the market tends to sell off a little bit in the final hour of trading going into the weekend as people want to take risk off the table.” [01:22]
• Investors sought safety ahead of weekends, adding to late-day declines.

3. Unique Historical Context

• Despite the big drops, analysts compare this month's decline to periods of financial crisis, but stress there’s no current crisis.

  “If you look back in history…where we see this kind of movement has been during crises and we're not in one right now.” — Jessica Menton [02:02]

• The Dow and S&P down 9% for December, the worst since February 2009 (financial crisis height).

4. Market Psychology & Fear of the Unknown

• Analysts Menton quotes say they can’t understand the panic selling given current economic strength — it appears driven by “fear of the unknown.”

• Markets are reacting more to uncertainties — Fed rate path, trade tensions, global growth — than concrete negative news.

  “There's just a number of different uncertainties.…Can we still be the strongest one in the room?” — Jessica Menton [02:56]

5. Light Holiday Trading Volume & Algorithmic Trading

• Year-end means fewer human traders, leading to “exaggerated” price swings. Algorithmic trading further amplifies volatility.

  “There's not as many players in the market…A lot of this algorithmic trading that’s trading on headlines, you’ll see those big swings.” — Jessica Menton [03:33]

6. Opportunities & Wait-and-See Attitude

• Some wealth managers are buying beaten-down sectors, especially energy, believing valuations are attractive.

• Question remains whether this buying momentum will continue into Q1.

  “I have spoken with a lot of wealth managers that have still been buying shares because they think the valuations look attractive.” — Jessica Menton [04:13]

• Many investors remain “in a wait and see mode,” awaiting clarity on trade and Federal Reserve policy, both of which could resolve in the first quarter.

  “Perhaps get more clarity in the next 90 days on trade, as well as the Fed has a few meetings…these lingering issues could actually be resolved.” — Jessica Menton [04:53]

7. Upcoming Data and Events to Watch

• Investors await:

  • The December jobs report, with expectations for stronger growth after November’s 155,000 new jobs
  • Manufacturing data from ISM
  • December auto sales
  • A panel featuring Fed Chair Powell and former Fed leaders Bernanke and Yellen

  “Job growth is expected to rebound…wage growth figures will be closely scrutinized.” — Charlie Turner [05:32]
  “Federal Reserve Chairman Jerome Powell will participate…with Ben Bernanke and Janet Yellen.” — Charlie Turner [05:58]

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Notable Quotes & Moments

• On Ending the Week Better than Expected:
  “I was actually more surprised that the market didn’t finish lower than it did today. So I think that is a positive sign.”
  (Jessica Menton, [01:22])

• On the Role of Uncertainty and Cautious Optimism:
  “We could see this turn around. It’s just the fact that there’s still a lot of uncertainty out there.”
  (Jessica Menton, [04:53])

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Timestamps for Important Segments

• Market Recap and Rebound: [00:32]–[01:22]
• Historical Comparisons and Ongoing Uncertainty: [01:46]–[02:56]
• Holiday Trading Volume & Algorithmic Impact: [03:25]–[03:33]
• Investment Strategies Moving Forward: [04:06]–[04:53]
• Data and Events to Watch in the Coming Week: [05:32]–[06:14]

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Takeaways

• The episode candidly explores why markets remain nervous despite few obvious negative signals, with panic likely driven by uncertainty about the future.
• Listeners gain practical insights into what sectors might present opportunity and why professional investors are both wary and opportunistic.
• Upcoming economic reports and Federal Reserve meetings are highlighted as potential turning points for market sentiment early in 2019.

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Transcript

[Charles Schwab Announcer]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day, but what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio. [e-mail] WashingtonWise.

[Charlie Turner]

With your money briefing. I'm Charlie Turner in New York for the Wall Street Journal. Stocks ended mainly lower Friday and more volatile trading. It capped an incredibly turbulent week for the markets. On Friday, the Dow Jones Industrials fell 76 points to 23,062. The NASDAQ Composite gained 5 points and the S&P 500 fell 3. Each index ended a three week losing streak. The Dow rose 2 point for the five days. The NASDAQ jumped 4%. The S&P gained 2.9%. Joining us in the studio is Wall Street Journal markets reporter Jessica Menton. Jessica, the market seemed to pull out of its funk with a powerful rebound starting mid week. Of course, that included the Dow's record gain of 1,086 points on Wednesday. But I guess that Friday's late wobble reminded us that uncertainty is still the name of the game.

[Jessica Menton]

Absolutely. It has been this way for quite some time during this quarter, especially on Fridays. I've just notice the market tends to sell off a little bit in the final hour of trading going into the weekend as people want to take risk off the table, different things like that. But I was actually more surprised that the market didn't finish lower than it did today. So I think that is a positive sign.

[Charlie Turner]

We should say that despite these recent gains, the indexes are all poised for annual losses for the first time since 2008, a full decade. And the blue chips and the S and P are on pace for their worst December, the worst fall final month of the year since 1931. That's unbelievable.

[Jessica Menton]

It really is. Another little factoid for you, not only for that December, but just in general. If you're looking at the worst months, the Dow and the S and P are down 9% for this month and that's the worst since February of 2009. Now that's during the height of the financial crisis. Something that's a little bit interesting with a lot of people that I've been talking to, especially with the volatility this week. They kept reiterating that the last times, if you look back in history where we see this kind of movement has been during crises and we're not in one right now.

[Charlie Turner]

I thought that was interesting. You quoted one market analyst, one investor, as saying that he really couldn't understand why there was such panic selling at this point, given that there really is no crisis. You know, despite the prediction for the economy slowing down, the economy is still strong. And you know, that's fascinating. But I guess it's the fear of the unknown and the fear of what might happen that sort of overpowers that.

[Jessica Menton]

Looking into 2019, that's what a lot of the different analysts, investors that I've spoken with have also said. There's just a number of different uncertainties. If you look at the Federal Reserve and their rate path, trade tensions, global growth concerns, and whether or not the US can continue to be this standout against other economies globally like it was in 2018, the question mark is basically, can we still be the strongest one in the room?

[Charlie Turner]

Yeah, of course, another thing driving the volatility is the light volume due to the absence of traders at year's end. And that sort of exaggerated everything.

[Jessica Menton]

Yes, that was definitely a part of that as well as different margin calls. But still something I thought was interesting. If you looked back to last Friday and Monday, typically you wouldn't see the type of volumes that we see. We are to your point. I think a lot of the moves to the upsides and the downsides are just there's not as many players in the market, different traders, human traders. This is what someone was explaining to me earlier. A lot of this algorithmic trading that's trading on a lot of headlines, you'll see those big swings like that.

[Charlie Turner]

Do investors see the beginning of the new year as an opportunity to step back into the market and buy some beaten down stocks?

[Jessica Menton]

If you look at a lot of the sectors that have been beaten down, particularly energy, because of what we've seen in the commodity space, oil being in a bear market, even though it's been beaten down. I have spoken with a lot of wealth managers that have still been buying shares because they think the valuations look attractive. The question is, will they continue to buy those beaten down shares in the first quarter? And that's something that they're really looking at as well as if you look ahead to next week, we're going to have the jobs report as well as manufacturing data. So that's going to be really key next week on Wall Street's radar.

[Charlie Turner]

Of course, the likelihood is that a lot of investors are in a wait and see mode.

[Jessica Menton]

Yes. And that's really because a lot of them keep reiterating that we should perhaps get more clarity in the next 90 days on trade, as well as the Fed has a few meetings in if we look in January and another one in March, that's all in the first quarter as well. So a lot of these sort of lingering issues could actually be resolved and we could see this turn around. It's just the fact that there's still a lot of uncertainty out there.

[Charlie Turner]

Wall Street Journal markets reporter Jessica Menton. Thanks, Jessica.

[Jessica Menton]

Thanks for having me.

[Charlie Turner]

With the government shutdown set to extend into the new year, some previously scheduled economic reports will be delayed. But we will get the all important monthly jobs report. The Labor Department, through the Bureau of Labor Statistics, will issue December employment data this coming Friday. Job growth is expected to rebound from the 155,000 jobs created in November, and the unemployment rate could go even lower than the current 3.7%. Plus, wage growth figures will be closely scrutinized. Also, we'll get a key manufacturing index for December from the Institute for Supply Management. And major carmakers will roll out their December vehicle sales. And Federal Reserve Chairman Jerome Powell will participate this Friday in a panel at the American Economic association in Atlanta. The panel is also expected to feature former Fed chiefs Ben Bernanke and Janet Yellen. And that's your money briefing. I'm Charlie Turner in New York for the Wall Street Journal.

[Charles Schwab Announcer]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington. [e-mail] WashingtonWise.