Quarterly Market and Economic Commentary

Following a difficult year for U.S. and International stock markets in 2018, accentuated by a swift and relatively severe correction in the fourth quarter, stocks turned and posted an impressive rally in January which carried through the quarter. Looking back, it is abundantly clear that the market reached an oversold condition in late December, but it was more than valuations that sparked the turnaround. The primary driver of the positive reversal turned out to be the same source that set off the correction in the first place … the Federal Reserve and Chairman Jerome Powell. In January, Mr. Powell communicated to the markets that the Fed’s previous plans to continue to raise the benchmark Federal Funds rate in 2019 would be placed on hold and acknowledged that patience would be prudent given market signals and the threat of a global economic slowdown taking hold. In addition, optimism over a potential trade deal with China helped support the rally, and while a deal had still not been reached by the end of the quarter, fears of a long and relentless trade war subsided greatly which led to improved investor sentiment.

U.S. large company stocks, measured by the commonly followed S&P 500 Index, gained 13.65% for the quarter, with half the gain coming in the month of January alone. U.S. small company stocks also experienced strong gains, with the Russell 2000 Index notching a gain of 14.60%. The NASDAQ composite index saw the largest gains during the quarter, increasing 16.81%, boosted by a strong recovery in the technology sector. On the international front, developed and emerging markets equities also recovered during the quarter with gains of 9.98% and 9.91% respectively. Finally, bonds generally saw gains, as a decline in interest rates pushed bond prices higher. The Barclays US Aggregate Bond Index posted a gain of 2.94% for the quarter. * Source: Morningstar

Looking ahead, with the Federal Reserve adopting a dovish stance on rates for the time being, the focus will turn to U.S. corporate earnings and a variety of economic data points. The U.S. economy has shown some signs of slowing, and recession fears have risen in recent months, particularly following a brief inversion of the yield curve in March, which has been known to be a semi-reliable predictor of past recessions. However, there has historically been a large gap in time between yield curve inversion and the subsequent recession, and not all inversions lead to a recession. In fact, the economy looks to be on stable footing and our outlook remains quite positive. Still, it’s something that bears watching. Corporate earnings and economic data reports in the second quarter will likely largely determine where we go from here, as well as further developments on global trade, particularly with China.

All opinions and estimates included are as of the date listed and are subject to change without notice. This article is provided for informational purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security or offering of individual investment advice. The S&P 500 Index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Barclays Capital U.S. Aggregate Index is a broad index representing the U.S. bond market. An investor cannot invest directly in an index. Past performance does not guarantee future results.