OUTLOOK ’19: Worries in stock markets to persist after rough 2018

HOUSTON (ICIS)–US-listed chemical stocks will likely face more challenges in 2019 as markets contend with worries about trade disputes and slower growth.

Many of the stocks followed by ICIS performed terribly, with many falling by more than 20%. The biggest loser was pigment producer Venator Materials. From 1 January to 14 December, its total return fell by 82%, according to Morningstar. The figure takes both capital gains and losses and dividends into account.

The behaviour of the stock market in 2018 was troubling, not just because of the number of corrections but also because of the length it took to recover from the declines at the start of the year.

Stocks actually started 2018 on a high note.

The Dow Jones Industrial Average rose from 24,824.01 at the start of the year to 26,616.71 on 26 January. In less than a month, the index rose by 7.22%.

At the time, stock markets were still optimistic about the Tax Cuts and Jobs Act, which US President Donald Trump signed into law in December.

The index would soon reach the first of what will be many corrections in 2018.

On 5 February, it fell by more than 6% before closing down at 4.60%.

At the time, traders were expressing concern that yields on Treasurys will rise due to inflation. As economic growth sped up, wages could rise. The tax reforms and a potential infrastructure plan could add more fuel to growth, putting more pressure on inflation.

To stem inflation, the central bank of the US would continue to increase interest rates, putting another drag on stock prices.

By the end of March, the US began making concrete threats to impose tariffs on Chinese imports, introducing yet another trend pressuring stock prices lower.

Ultimately, the stock market began recovering. However, unlike other recoveries, it took the indices several months to make up the ground lost during the initial corrections of 2018.

By 3 October, the Dow Jones reached a new high of 26,828.39. That was more than eight months after its previous high in January.

Stock markets did not have much time to enjoy the recovery.

On 10 October, the Dow Jones fell by more than 3%, this time because of worries about economic growth.

This decline had been preceded by a profit warning from US-based paints and coatings producer PPG.

It would be followed by warnings and general pessimistic statements from other chemical producers.

The markets have yet to recover, and the various indices have been slipping in and out of corrections ever since.

Now, in addition to trade disputes and interest rates, stock markets are now contending with the prospects of slower economic growth.

The warnings signs are coming from companies, from economic statistics and from inverted yield curves.

Looking ahead, the Federal Reserve could pause its campaign of raising interest rates if signs appear that economic growth is slowing down. Slower growth will also address the concerns about inflation.

However, it is unclear whether the US will be able to come to terms with China about its trade grievances.

The worries about growth are widespread, since they involve Europe, China and several emerging markets. Even the US is showing signs of a slowdown, with new-home and automobile sales declining.

Stock markets could continue to struggle if these trends continue.

* * *

For 2018, the chemical industry performed much worse than the general market.

On 26 January, the Dow Jones US Chemicals Index reached 708.29, its highest point of the year. On 14 December, it closed at 565.11, a decline of more than 20%, putting the index in a bear market.

The S&P 500 Chemicals Industry Index would reach a 2018 high of 664.66 on 26 January. It closed on 14 December at 545.15, a decline of 18.0%.

The following table shows the year-to-date total return through 14 December of the US-listed companies followed by ICIS. Total returns include both capital gains and losses as well as income in from dividends and interest.

Name	Ticker	$ Current Price	% Total Return YTD
Venator Materials PLC	VNTR	3.87	-82.10
Calumet Specialty Products Partners LP	CLMT	2.66	-62.86
Tronox Ltd	TROX	7.49	-61.29
Kronos Worldwide Inc	KRO	11.03	-52.46
Kraton Corp	KRA	22.26	-51.80
The Chemours Co	CC	27.92	-44.11
Ultrapar Participacoes SA ADR	UGP	12.62	-42.61
Huntsman Corp	HUN	18.30	-41.36
Olin Corp	OLN	20.02	-40.05
AdvanSix Inc	ASIX	24.84	-39.96
Westlake Chemical Corp	WLK	64.63	-36.24
Trinseo SA	TSE	45.42	-34.39
PolyOne Corp	POL	28.72	-30.55
Albemarle Corp	ALB	84.97	-30.19
Axalta Coating Systems Ltd	AXTA	22.23	-30.04
Cabot Corp	CBT	43.77	-25.82
Sociedad Quimica Y Minera De Chile SA ADR	SQM	42.68	-22.95
DowDuPont Inc	DWDP	52.78	-22.35
H.B. Fuller Co	FUL	40.47	-22.21
LyondellBasell Industries NV	LYB	82.34	-20.52
Eastman Chemical Co	EMN	71.50	-20.52
Valvoline Inc	VVV	19.30	-19.67
FMC Corp	FMC	77.22	-16.82
Valero Energy Corp	VLO	73.30	-16.59
Celanese Corp	CE	86.69	-16.05
PQ Group Holdings Inc	PQG	14.29	-12.34
PPG Industries Inc	PPG	100.14	-12.04
W R Grace & Co	GRA	61.22	-11.09
Cosan Ltd	CZZ	8.40	-11.01
Phillips 66	PSX	86.83	-9.12
Bunge Ltd	BG	58.83	-9.06
Methanex Corp	MEOH	51.35	-8.65
Nutrien Ltd	NTR	46.98	-6.60
Occidental Petroleum Corp	OXY	65.10	-5.27
Sherwin-Williams Co	SHW	386.00	-5.05
PBF Energy Inc Class A	PBF	32.19	-4.94
Westlake Chemical Partners LP	WLKP	21.95	-4.88
Exxon Mobil Corp	XOM	75.58	-4.10
Alerian MLP ETF	AMLP	9.50	-3.52
Marathon Petroleum Corp	MPC	59.87	-3.06
Braskem SA ADR repr Class A	BAK	24.82	-0.39
Stepan Co	SCL	77.25	0.34
NewMarket Corp	NEU	394.11	0.56
CF Industries Holdings Inc	CF	42.06	0.71
DCP Midstream LP	DCP	32.97	1.76
Linde PLC	LIN	156.93	3.80
Enterprise Products Partners LP	EPD	25.85	5.64
Ashland Global Holdings Inc	ASH	72.97	5.99
Platform Specialty Products Corp	PAH	10.91	11.49
Ecolab Inc	ECL	154.47	16.46
Ingevity Corp	NGVT	82.98	17.26
RPM International Inc	RPM	60.44	17.42
The Mosaic Co	MOS	30.93	20.85
Ecopetrol SA ADR	EC	18.36	31.89
Petroleo Brasileiro SA Petrobras ADR	PBR	13.40	33.50

Source: Morningstar

Focus article by Al Greenwood