In fact, take four hikes. And with that, the Federal Reserve took its parting shot at 2018 and went home for the year, presumably not to be heard from at all in the new year, if markets are to be believed. We are not so sure. Expecting economic growth to remain above trend in 2019, we think the Fed will be back in the picture for 2019, taking two more rate hike shots at investor expectations.
The rout in equities accelerated last week. The S&P 500 shed 7.1 percent, its worst week since August 2011. The index is now lower by 9.6 percent on the year and down 17.5 percent from its September 20 closing high, just shy of the 20 percent decline that defines a bear market, although that comes as small comfort. The Nasdaq Composite index is now in a bear market, down 21.9 percent from its August 29 high after falling 8.4 percent last week. And the small cap Russell 2000 is now down 25.8 percent after dropping 8.4 percent last week.
Just one week after surging to their best weekly gain in years, U.S. stocks gave almost all of it back last week, suffering their worst loss since March. It was a curious week to say the least. After receiving some reassuringly dovish commentary from the Fed the week before, stocks were poised to rally further on word from Buenos Aires of a cease fire on the trade front with China. And it came. But the rally faded quickly, lasting only through Monday, after which stocks turned sharply lower. The S&P 500 lost 4.6 percent on the week, leaving it lower on the year by 1.5 percent and back in correction territory from its high on September 20.