The long bull market for U.S. stocks showed signs of ending in 2018, with some parts of the market already falling into bear-market territory by late December, and other parts threatening to do so. The U.S. economy remained healthy for the most part, and for most of the year stocks marched upward amid healthy corporate profits. But in the fourth quarter, the Trump Administration’s trade war with China, along with concerns over rising interest rates and general geopolitical uncertainty, spooked the markets and caused stock prices to tumble. A post-Christmas rally erased some of the losses, but through Dec. 27, the S&P 500 was down 5% for the year to date, including a 14% loss in the fourth quarter. The Russell 2000 Index of small-cap stocks was down 12% for the year to date and 21% in the fourth quarter, while the NASDAQ Composite was down 4% and 18% in the fourth quarter.
Large-cap stocks outperformed small- and mid-caps this year, as they often do when markets get nervous. Growth performed better than value, as many growth stocks benefited from strong earnings and a perception that they’ll still be able to do well in a slowing economy. Of the nine Morningstar Style Box categories, large-growth funds had the best year-to-date returns through Dec. 27 (down 3%), while small-value funds had the worst (down 16%). In 2017, large-growth funds were also the big winners, driven by enormous gains from widely held giants Facebook (FB), Apple (AAPL), Amazon.com (AMZN), Netflix (NFLX), and Alphabet (GOOG). In 2018 those tech giants had decidedly more mixed results. While Amazon and Netflix still posted healthy gains, Apple and Alphabet were basically flat for the year, and Facebook was down more than 20% amid concerns about the firm’s handling of data privacy.
David Kathman, CFA, Ph.D. does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.