In Forecast 2018 of 14 December 2017, I wrote “Without forecasting closing year index levels, I believe the US and Australian equity markets will close 2018 at a lower level than the exit level of 2017. The magnitude and cause of a market correction is difficult to predict. Investors are currently oblivious to an exogenous factor but there is abundant fertile ground in which one can sprout.”

This was a brave (or stupid) call at the time, as global markets, led by the US were on the tear. By 26 January, all three major US indices were at all-time highs, the Dow Jones was up 7.7%, S&P 500 7.5% and Nasdaq Composite 8.7%. This, on top of a very strong Trump-bump performance in 2017. But when US wages growth spiked to 2.9% annualised in January and bond yields surged, markets corrected as investors feared a possible inflation breakout.

The markets recovered some of the lost ground and remained nicely positive for the year until President Trump shook global trade relationships to their foundations by introducing tariffs on steel and aluminium products of 25% and 10% respectively. A possible exogenous factor had emerged.

Australia’s S&P ASX 200 index is up 2.1% for the half year to 30 June, after a stellar May and June added 3.9%, pulling the index from negative territory in the first four months. Including dividends, the Accumulation index is up 4.3%. For the 2018 financial year the market performance slowed noticeably in the second half. The Hayne Royal Commission impacted the heavily weighted banking sector. S&P/ASX 200 is up 8.3% (+6.0% 1H/+2.1% 2H) and the Accumulation index 13% higher (+8.4% 1H/+4.3% 2H).