If the end of 2018 was any guide, we should buckle our seatbelts for a wild ride in markets in 2019. Volatility is an investor’s nightmare, but it can be a paradise for nimble traders with their fingers on the pulse of markets.
The U.S. Federal Reserve ignited a selloff in the stock market on December 19 when they hiked the short-term Fed Funds rate by 25 basis point for the fourth time in 2018. The central bank told markets to expect two more increases in 2019. While the Fed reduced next year’s expectations by one rate increase, the overall tone from the central bank remained hawkish which led to a slide in stocks. At the same time, the price of crude oil evaporated since making a high at $76.90 on October 3. On December 24 the energy commodity hit a low at $42.36, just 21 cents above its critical support level at $42.05, the June 2017 low.
Meanwhile, the volatility in markets supported gains in the price of gold which did not make a lower low in December for the first time in years. The yellow metal made higher lows and higher highs since mid-August despite a stronger dollar in a sign of strength. The rise in the price of gold reflects the fear and uncertainty in markets across all asset classes. On December 26, the price of silver, a more volatile precious metal that tends to attract speculative activity, broke convincingly above the $15 per ounce level for the first time since August and traded to a high of $15.46 at the end of last week settling Friday near the highs at $15.436.
There is lots of action in markets these days and more than a little confusion as we head into 2019. One product that it a guide to the mood of markets is the VIX index which measures the implied volatility of call and put options of the stocks in the S&P 500 index.
As the chart dating back to the start of 2018 illustrates, the VIX traded in a range from 8.92 on the third trading session of the year to a high at 50.30 in February. Since early October the VIX has made a series of higher lows and was around the 29-level at the end of last week with one trading session to go in 2018 on New Year’s Eve.
The VIX is going into 2019 at a level that is a warning to all investors and traders. The warning flag for investors is for continued concern, but for traders, it is a sign that wide price variance will continue to present more than few trading opportunities in the coming year.
Politics, global and domestic, and economics will dictate the path of least resistance for all markets in the coming year. The news cycle will continue to provide surprises and events that move markets all over the map. If the price action in 2019 is anything like it was in the fourth quarter of 2018, we are in for a wild ride. Happy New Year to all and see you in 2019!