By Dr. Sonu Varghese via

After surging to new highs over the first three quarters of 2018, equity markets tumbled and posted their worst year in a decade.  The S&P 500 index fell -4.4% (including dividends), finishing the year 14.5% lower than its September high point.  At its lowest level in late December, the index just barely missed a ‘technical bear market’ decline of -20%.  Amidst the chaos, CBOE’s volatility index was up almost 200% on Christmas eve from its level at the beginning of the quarter.

Volatility manifested itself quite violently amongst the sectors making up the S&P 500 as prior trends turned abruptly.  Previously high flying sectors like Technology fell more than -17% over the quarter, while defensive sectors like Utilities rose in rank.

Risk-off sentiment saw investors rushing back to that tried and tested safe asset, US Treasuries.  Yet again, forecasts of the US 10-year Treasury yield topping the 3.0 mark by the end of 2018 (including predictions of 3.50) were confounded.  US 10-year yields did rise, but ended the year at 2.69, just 29 basis points higher than where it began 2018.

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