Global Market Performance in Winter 2018
Global equity markets entered winter 2018 with strong momentum from the prior year but faced increased volatility by the end of the season. The S&P 500 rose roughly 5% in the first weeks of January 2018 before entering a correction phase in February, with the index falling more than 10% from its January peak by the end of that month. https://www.forbes.com/sites/forbesbusinesscouncil/2018/02/09/the-august-2015-correction-was-a-warning-sign-for-the-markets/
Fixed-income yields moved higher during the early part of the season as the U.S. Federal Reserve continued its rate-hiking cycle, with the benchmark 10-year Treasury yield reaching around 2.9% in early February 2018. The rise in yields was a primary driver of the February correction, as higher discount rates reduced the present value of future corporate earnings, particularly for growth-oriented technology stocks.
Major Corporate Events and Earnings
Tesla reported its first profitable fiscal year in 2018, with full-year GAAP net income of approximately $1.96 billion, driven by strong Model 3 production ramp-up and regulatory credit sales. The company's market capitalization surpassed $50 billion during the winter months, reflecting investor confidence in its production trajectory despite ongoing concerns about Model 3 delivery targets and capital expenditure. https://ir.tesla.com/
SpaceX achieved a record pace of launches in the lead-up to winter 2018, completing the SES-16/GSA-1 mission on an upgraded Falcon 9 Block 5 variant in late December 2017, which set the stage for a high-activity year. The company's valuation rose above $21 billion during private fundraising rounds in the winter period, supported by a manifest of over 100 launch contracts and a growing share of the commercial satellite launch market.
Regulatory and Policy Developments
U.S. Tax Reform Implementation
The Tax Cuts and Jobs Act, signed into law in December 2017, began affecting corporate tax filings and withholding schedules during winter 2018. The reduction of the federal corporate tax rate from 35% to 21% was a primary driver of the strong earnings growth reported by S&P 500 companies in the first quarter of 2018, with many firms repatriating overseas cash and announcing share buyback and dividend increases.
SEC and Disclosure Requirements
The U.S. Securities and Exchange Commission continued to enforce its disclosure requirements for public companies, with a focus on cybersecurity risk management and human capital measures. In January 2018, the SEC adopted amendments to Regulation S-K requiring public companies to describe the role of human capital resources in their business, if material to investors, marking a significant shift in non-financial disclosure standards. https://www.sec.gov/
Impact on Financial Reporting
Companies updated their risk factor disclosures and segment reporting to reflect the new tax law's impact on deferred tax assets and liabilities, with many noting a significant increase in the valuation allowance for certain deferred tax assets. The change in tax rates also affected the calculation of earnings per share for prior periods, requiring restatement of comparative figures in annual reports filed during the first half of 2018.
Key Takeaways for Investors
Winter 2018 demonstrated that a combination of rising interest rates, a strong U.S. dollar, and the initial impact of tax reform could rapidly reverse a year-long bull market trend. Investors who maintained diversified allocations across equities, fixed income,