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How Q4 ranks among the worst 20 quarters of the past half century

David Brett

David Brett


Global stocks suffered their worst quarterly fall in seven years at the end of 2018. The MSCI World Index fell 13.9% from the start of October to the end of December. It was the 11th worst quarterly fall since 1970.

Why did stocks fall?

US president Donald Trump’s tax cuts had provided an added boost for investors heading into 2018, and US GDP growth accelerated to 4.2% on an annualised quarterly basis in Q2. However, economic growth elsewhere, notably in the eurozone, decelerated and global growth became less synchronised.

Meanwhile, the prospect of further US tax cuts in 2019 had faded while a range of other factors weighed on investors: an escalation in the US-China trade conflict, reduced monetary stimulus and global economic growth concerns.

The last quarter of 2018 was the worst quarterly performance for stocks since the third quarter of 2011, when the eurozone debt crisis saw stock markets tumble 17.1%.

A large proportion of the quarter’s losses in 2018 came in December, when global stocks fell 7.7%. It was the worst December performance for stocks since 1970 and crushed any hope of a “Santa Rally”.

In the calendar year 2018 the MSCI World Index fell 10.4%, its worst yearly performance since the height of the global financial crisis in 2008. It was the eighth worst yearly performance since 1970 and one of only 14 of the last 48 years to end with a loss for the index.

The UK stock market had a particularly bad year because of Brexit concerns. The FTSE 100 fell 12.4%, it’s worst yearly performance since 2008.

How global stocks performed in 2018


This material is not intended to provide advice of any kind. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Past performance is not a guide to future returns and may not be repeated.

Source: Schroders. Refinitiv data for The MSCI World Index in US dollars as at 19 December 2018.

According to data from Refinitiv, the last quarter of 2018 ranks as the 11th worst quarterly performance for global stocks over the last 48 years, which is as far back as its data goes.

How does Q4 2018 compare historically

Rank Year MSCI World Index level (end of quarter) % change Reason for fall
1 Q3 1974 74.45 -23.6% Recession
2 Q4 2008 920.23 -22.2% Global financial crisis
3 Q3 1990 423.15 -18.7% Recession
4 Q3 2002 738.18 -18.7% Recession
5 Q2 1970 79.84 -17.8% Recession
6 Q3 2011 1104.07 -17.1% Eurozone debt crisis
7 Q4 1987 407.99 -15.9% Black Monday
8 Q3 2008 1182.44 -15.7% Global financial crisis
9 Q1 1990 483.82 -14.7% Recession
10 Q3 2001 926.02 -14.6% Terrorists attack the World Trade Centre
11 Q4 2018 1883.90 -13.7% Trade wars, slowing global economy
12 Q4 1973 108.41 -13.3% Oil crisis
13 Q2 2010 1041.32 -13.3% Eurozone debt crisis and the “flash crash”
14 Q1 2001 1061.26 -13.1% Dotcom bubble bursts
15 Q1 2009 805.22 -12.5% Global financial crisis
16 Q3 1998 952.39 -12.3% Russia defaults on its debts
17 Q3 1981 136.53 -11.7% Rising interest rates in the US hit the global economy
18 Q3 1975 94.43 -11.6% Recession
19 Q1 1982 130.75 -10.8% Recession
20 Q2 2002 907.81 -9.5% Recession

This material is not intended to provide advice of any kind. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Past performance is not a guide to future returns and may not be repeated.

Source: Schroders. Refinitiv data for MSCI World correct at 13 December 2018. Returns not adjusted for inflation or charges.

The worst quarterly performances

2000s: The financial crisis

Ten of the 20 worst quarterly falls over the last 48 years have happened since the turn of the millennium.

The bursting of the dotcom bubble, when valuations rose sharply fuelled by investments in internet-based companies, caused global stocks to fall 13.1% in Q1 2001.

The terrorist attacks on the World Trade Centre in New York in September 2001 triggered a 13.1% fall in Q3 2001. which preceded a global recession. The following year saw stocks fall 18.7% in Q3 2002, the fourth worst quarterly performance since 1970.

The fallout from the global financial crisis can be attributed to eight of the ten worst quarterly falls since 2000.

Read more: The global financial crisis 10 years on: 7 charts to consider

1970s: Recession and the oil crisis

The 1970s was volatile for stocks with four of the worst 20 falls occurring during that decade. The global economy fell into recession in 1970. The world was then struck by the oil crisis in 1973, which then fed into another recession.

The oil crisis began during the 1973 Arab-Israeli War. Arab members of the Organization of Petroleum Exporting Countries (OPEC) imposed an embargo against the US in retaliation for the US decision to re-supply the Israeli military and to gain leverage in the post-war peace negotiations. By the end of the crisis in March 1974 a barrel of oil had quadrupled in price from $3 to $12.

1987: Black Monday

Perhaps the most memorable market fall occurred in the fourth quarter of 1987. Most of the losses were sustained in a single day: Black Monday. On 19 October 1987 global stock markets crashed amid worries about a slowing global economy and high stock valuations. The concerns were compounded by a computer glitch. Global stocks fell 23% in October that year and finished the fourth quarter down 15.9%.

Read more: Black Monday 30 years on: how it happened and what we can learn

Has the stock market bull run ended?

The MSCI World Index reached its current record closing high of 2248.93 on 26 January 2018. Since then the index has fallen to a closing low of 1795.28 on 25 December 2018, which is a fall of 20.1% from its peak.

While the market has recovered slightly, the fall of more than 20% from its peak technically means that the market entered bear territory.

If the market falls between 10% and 20% from its peak it is classified as a correction. A fall of 20% or more is classified as a bear market.

Prior to the fall, stock markets were in the midst of their longest bull run in history, which began when the market troughed in March 2009. The MSCI World Index rose 227% from its low of 688.63 on 9 March 2009 to its current record highest level of 2248.93 on 26 January 2018.

In 2009, markets were in turmoil due to the financial crisis. Since then central banks have reduced interest rates and pumped cash into the financial system. The aim was to keep borrowing costs low to encourage people to spend. It also inflated asset prices including equities. However, in some cases central banks have started to raise interest rates again. For example, the US Federal Reserve raised interest rates three times in 2018.

Read more: The story of the longest bull market in history told in five charts

What next for stocks in 2019?

Duncan Lamont, Head of Research and Analytics at Schroders, said the tumultuous end to 2018 has provided a silver lining for stock market investors.

“Even before the fourth quarter downturn, markets had been cheapening in valuation terms. Improving fundamentals were behind this shift. Profit growth for 2018 is projected to be a hefty 24% for the US market, although this is partly down to the Trump administration’s tax reductions.

“UK and emerging markets are also both forecast to deliver double-digit earnings growth, while Europe is around mid-single digit levels. Japan is bringing up the rear with only 3% earnings growth, but it has seen its fair share of weather-related troubles this year.

“If share prices end the year where they started, investors would be in a stronger position from a fundamental standpoint. In simple terms, they would now benefit from more earnings for each dollar that they have invested.

“However, recent events have meant that share prices haven’t been flat, they’ve fallen sharply. That means that not only are earnings higher, but prices are lower. This double-whammy has pushed popular earnings-based measures of stock market valuations close to their cheapest levels for many years.”

Read more: Which stock markets are cheapest heading into 2019

We recently published a 10-year outlook for markets, Inescapable investment truths for the decade ahead.

This highlighted the modest return prospects from public markets, given lower rates of economic growth than in the past and the low level of bond yields.


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Marc Brodard

Marc Brodard

Head Private Clients - Switzerland