December 2018 Financial Markets Summary

$1.99, $1.94, $1.98 gasoline prices at the pump!  Did we just flashback to the early 2000’s?  These low prices are the result of oil’s 33% plummet in just the past two months.  Nevertheless, this seems to be a nice early gift for this holiday season!  If these low prices persist, this could provide a boost to consumer spending and other parts of the economy, but also pressure profitability of the energy sector.

So we ask, what’s causing this steep decline?  In past years, OPEC, or the Organization of Petroleum Exporting Countries, has been the culprit.  OPEC is a consortium of 14 countries: Algeria, Angola, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE and Venezuela.  These countries currently control about 40% of the world’s oil supply.

However, the United States has become a real game changer to the oil markets.  U.S. oil production has more than doubled in just the past seven years primarily due to the fracking technology.  This has moved the U.S. up the list to the largest producer of oil in the world.  This significant change has created much more oil supply around the world and has pushed prices lower.  OPEC could collectively decide to cut their production in attempt to boost prices, but it doesn’t appear the U.S. will be cutting production anytime soon.

Tariffs and trade discussions also continue to dominate the media waves these days.  As of Sunday, December 2nd, it appears that China and the U.S. have reached an agreement to temporarily spare China from additional tariffs that were planned to go into effect in early 2019.  This caused global markets to spike on Monday, December 3rd, but the proof will be in the details of this agreement that has yet to be announced.

We would expect to see volatility continue in the months ahead as markets grapple with the oil markets, Chinese trade tensions and rising interest rates from the Federal Reserve.  We remind clients to keep their next 5-8 years of income needs from the portfolio in stable assets such as cash, CDs and short-term bonds.  Please keep in mind our time-tested belief that “today’s headlines and tomorrow’s reality are seldom the same.”

Asset Index Category Category Category 5-Year 10-Year
3 Months 2018 YTD Average Average
S&P 500 Index – Large Companies -4.9% 3.2% 8.8% 11.9%
S&P 400 Index – Mid-Size Companies -8.1% -1.1% 7.6% 13.8%
Russell 2000 Index – Small Companies -11.9% -0.1% 6.1% 12.5%
MSCI ACWI – Global (U.S. & Intl. Stocks) -6.4% -3.1% 6.1% 11.0%
MSCI EAFE Index – Developed Intl. -7.3% -9.4% 1.8% 7.5%
MSCI EM Index – Emerging Markets -5.4% -12.2% 1.9% 9.1%
Short-Term Corporate Bonds 0.3% 0.4% 1.2% 2.7%
Multi-Sector Bonds -0.8% -1.8% 2.0% 3.7%
International Government Bonds -2.2% -3.5% -0.2% 1.9%
Bloomberg Commodity Index -0.8% -4.7% -7.3% -3.5%
Dow Jones U.S. Real Estate -0.8% 3.9% 10.0% 14.7%


Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment, strategy, or product or any non-investment related content, made reference to directly or indirectly in this newsletter, will be suitable for your individual situation, or prove successful. This material is distributed by PDS Planning, Inc. and is for information purposes only.  Although information has been obtained from and is based upon sources PDS Planning believes to be reliable, we do not guarantee its accuracy.  It is provided with the understanding that no fiduciary relationship exists because of this report.  Opinions expressed in this report are not necessarily the opinions of PDS Planning and are subject to change without notice.  PDS Planning assumes no liability for the interpretation or use of this report. Consultation with a qualified investment advisor is recommended prior to executing any investment strategy. No portion of this publication should be construed as legal or accounting advice.  If you are a client of PDS Planning, please remember to contact PDS Planning, Inc., in writing, if there are any changes in your personal/financial situation or investment objectives.  All rights reserved.