Stocks finish down after a turbulent December.

Uncertainty translated into a roller-coaster ride for markets in December. Please read on to find out what happened and how you can plan for your future.

What happened.

Stock markets took a roller-coaster ride in December. Large-cap stocks, measured by the S&P 500, moved by +/-1% on 10 of the 21 days markets were open. And there were some remarkable days: the index fell by 3.23% on one day and rose by 4.96% on another. By the end of the month, however, U.S. stock markets were down. The S&P 500 closed down 9.03%, with small- and mid-cap stocks falling by more. Overseas stocks fell less. Developed markets were down by 4.85% and emerging markets by 2.66% (MSCI EAFE and Emerging Markets Indices). These were helped by the dollar falling against other currencies. Bonds were a bright spot, with the Bloomberg Barclays Aggregate Index up 1.84%.

Why it happened.

Markets tend to be calmer when things are predictable — when news is slow. Uncertainty can lead to volatility, and December had plenty of it. Market participants were uncertain about trade and tariffs, the outlook for economic growth at home and abroad, the government shutdown, and the Federal Reserve’s plans for interest rates. When news was reported amid this uncertainty, markets moved strongly in response.

This volatility is certainly unsettling, and declines in stocks are unpleasant. Markets are unpredictable: No one knows what markets will do tomorrow, never mind next month or next year. But it’s important to remember why we invest in stocks in the first place.

What this means for you.

Financial Engines builds portfolios tailored to your situation and preferences. The higher your level of risk — because you’re a long way from retirement or you’ve told us you want to take risk — the more you could be affected by the fall in stocks in December. If your risk level is lower, this fall could be somewhat cushioned by your higher holdings of bonds. Either way, it is important that the information you provide us is up to date and complete. The new year is a great time to log in to your Financial Engines account, or call one of our advisors, to make sure we have the information we need to best meet your needs.

 

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