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That Sure Felt Like a Bear

| December 31, 2018
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While technically not a bear market, it sure felt like one. From its September 20 high through Christmas Eve, the S&P 500 Index fell 19.8%, including a more than 7% one-week (December 14–21) decline unmatched since the 2008–09 financial crisis. Should the S&P 500 end the month where it closed on Christmas Eve, December would mark the third-worst month ever for stocks, behind only October 1987 (-21.8%) and October 2008 (-16.9%).

Market participants have had a lot to digest, including the risk of a policy mistake by the Federal Reserve (Fed), the China trade dispute, a government shutdown, cabinet-level departures from the White House (notably Defense Secretary James Mattis), the United States’ decision to pull troops out of Syria and Afghanistan, and communication mishaps by the Fed and Treasury Secretary.

These issues have given market participants too much uncertainty to shrug off. Here we offer some historical perspective on bear markets that were not accompanied by recessions, which suggests the worst of this sell-off may be behind us. We also include our latest thoughts on stock fundamentals, the Fed, the government shutdown, and whether Christmas Eve marked a major market low. For more of our views on the U.S. economy, please see today’s Weekly Economic Commentary.

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