Global equity markets sold off sharply in the fourth quarter, capping off a tumultuous year for stocks. For the first three quarters, non-U.S. stocks declined, while U.S. stocks appreciated by double digits. Rising interest rates in the U.S. pressured valuations for financial assets worldwide. Furthermore, interest rate differentials weakened foreign currencies, especially those of emerging markets. From an economic standpoint, the U.S. benefited from front-end loaded tax cuts and stimulative infrastructure spending measures instituted earlier in the year. Consequently, the U.S. grew faster while global peer growth had been slowing.

Therefore, despite continual downward pressure on asset prices due to the Federal Reserve’s rate hikes, the U.S. market managed to grind higher for most of the year. In fact, this pattern of strong market performance in the U.S. has been the case every year since former Chairwoman Janet Yellen initiated the Federal Reserve’s first rate hike following the Great Financial Crisis in December 2015.

Issues surrounding trade policy further complicated the picture. The trade war between the U.S. and China exacerbated a weakness in consumption and industrial production in China that was already in place due to deleveraging and a softening property market. Meanwhile, in Europe, the European Central Bank (ECB) indicated a loss of economic confidence due to the E.U.’s (European Union) own trade war with the U.S. and stalled negotiations with the United Kingdom (U.K.) regarding Brexit.

In the fourth quarter, despite the constancy of these factors, several markets reacted noticeably different. First, the sell-off pulled the U.S. stock market into a deep decline for the first time this year. Second, the emerging markets, which arguably have suffered the most from trade war fallout and a stronger dollar, managed to outperform developed markets. A notable group of emerging markets even appreciated in price. India, Indonesia and the Philippines are fast growing economies that import oil; they stand to benefit from oil’s price decline and a probable reversal in dollar strength. Brazil has continued a shallow recovery from recession; there is enthusiasm for the newly elected right wing President Jair Bolsonaro’s slate of pro-business reforms.

The U.S. economy was still robust. Gross Domestic Product (GDP) grew 3.5% in the third quarter, the labor market remained at full capacity, and inflation hovered near the target of 2%. In spite of greater market turbulence this past quarter, the Federal Reserve raised bank borrowing rates for the fourth time this year, to a range between 2.25% and 2.5%, and upgraded its forecast for GDP growth in the fourth quarter to 3%.